Regulation of NZ insurance sector well under way
Implementation of the Reserve Bank's regulatory regime for insurers is well under way, with the aim of promoting a sound and efficient insurance sector, the Reserve Bank's Head of Prudential Supervision Toby Fiennes said today.
In a speech to the Australasian General Insurance Exchange Conference in Sydney, Mr Fiennes said that the new licensing regime is already resulting in a sounder insurance sector.
"The requirement to obtain a licence means that insurers must all meet certain minimum standards and this serves to reduce areas of high risk within the sector," he said.
The Reserve Bank's regulatory regime is intended to reduce the risk of an insurer failing, by promoting a sound and efficient insurance sector. Its regulatory approach is based on principles of self, market and regulatory discipline.
The regime includes requiring insurers to meet solvency standards, which incorporate a catastrophe risk capital charge aimed at ensuring insurers can adequately respond to a 1 in 500 year event. Insurers are also required to be licensed, with the industry working towards a full licensing deadline of 7 September this year.
The recent Canterbury earthquakes had given the Reserve Bank first-hand experience of catastrophes and these experiences were being built into the regime, Mr Fiennes said.
"The prudential requirements of the Insurance (Prudential Supervision) Act significantly reduce the likelihood of failure and provide the Bank with appropriate tools to manage financial distress of an insurer.
"However and importantly, we do not run a zero failure regime, nor is there any Reserve Bank or government guarantee against failure."
Mr Fiennes said the regulatory changes being put in place include increasing access to information on an insurer's ability to pay claims, to help policyholders make informed decisions when buying insurance.
This includes mandatory disclosure requirements by insurers in areas such as solvency and the provision of financial strength ratings from approved agencies, similar to the credit ratings provided for banks and non-bank deposit takers.
Sonia Speedy, External Communications Adviser
Ph 04 4713846, 021 663 082, [email protected]