New Zealand: Insurance & Reinsurance

In New Zealand, insurers are primarily regulated under the Insurance (Prudential Supervision) Act 2010 (IPSA). Under the IPSA, a person must not carry on insurance business in New Zealand unless they hold a licence issued by the Reserve Bank of New Zealand (RBNZ).

The primary statutes regulating the writing of insurance contracts are the:

In November 2019, the New Zealand Government agreed to reform insurance contract law, including requiring insurance policies to be written and presented clearly, so that consumers can easily understand them; strengthening protections for consumers against unfair terms in insurance contracts; and extending powers to the Financial Markets Authority (FMA) to monitor and enforce compliance with new requirements. The exposure draft of the Insurance Contracts Bill (ICB) was released for consultation on 24 February 2022. Under the ICB, the Life Insurance Act 1908, Part 3 of the Law Reform Act 1936 (which is the part referred to in the table above), the Insurance Law Reform Act 1977 and the Insurance Law Reform Act 1985 will be repealed. The timing for implementation of the ICB is not yet known.

The IPSA applies to all life insurers, general insurers and reinsurers. However, different solvency standards apply depending on the type of insurance business carried out by the licensed insurer. RBNZ has issued a Solvency Standard for Life Insurance Business and a separate Solvency Standard for Non-life Insurance Business.

In addition, a life insurer must comply with the statutory fund requirements in the IPSA.

A reinsurer is not required to comply with the financial strength rating provisions in the IPSA, including disclosure requirements.

The ICB will apply to all contracts of insurance (as defined in the IPSA) that are governed by New Zealand law (or would be but for a choice of law provision in the contract) and therefore will apply to life insurers, general insurers and reinsurers.

Brokers and insurance intermediaries are primarily regulated under the Insurance Intermediaries Act 1994 (IIA), the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPA) and the Financial Markets Conduct Act 2013 (FMCA).

The IIA governs insurance intermediaries and brokers. It is primarily focused on ensuring that the risk of default or insolvency of the intermediary or broker falls on the insurer rather than the insured. The IIA does not impose any registration requirements and no regulator has specific jurisdiction for monitoring compliance with the IIA. The IIA’s obligations are most commonly raised in civil disputes between insurers, insureds and insurance intermediaries. Obligations on brokers are more onerous and include duties in relation to payments due to the insured and operating of client broking accounts. The consultation draft of the ICB carries over most of the provisions of the IIA, although further feedback is being sought in relation to the holding by brokers of premium money.

The FMCA, which was amended by the Financial Services Legislation Amendment Act 2019 on 15 March 2021, includes a new regime for the regulation of financial advisers. A contract of insurance is captured within the definition of a “financial advice product” under the FMCA and, therefore, financial advice in respect of an insurance policy is subject to this regime.

Under this regime, anyone who gives financial advice (which could include insurers, brokers or other intermediaries) will need to be licensed by the FMA as, or engaged by, a “financial advice provider”. Financial advice providers can engage individuals as “financial advisers” or “nominated representatives” to provide financial advice on their behalf. The financial advice provider will remain liable for the acts or omissions of those individuals. Financial advice providers and financial advisers are required to be registered under the FSPA and belong to an approved dispute resolution scheme if they provide financial advice to retail clients. Financial advice providers are mostly operating under transitional licences and must obtain full licences by March 2023.

The FMCA imposes duties on persons providing financial advice, including a duty to give priority to the client’s interests and, if financial advice is provided to a retail client, a duty to comply with the Code of Professional Conduct for Financial Advice Services. Disclosure requirements also apply where financial advice is being given to a retail client.

The IPSA requires each person who carries on insurance business in New Zealand to be licensed as an insurer.

A person carries on insurance business in New Zealand if the person:

• is:
  • a body corporate or an association of persons incorporated or formed in New Zealand;
  • an overseas company that is required to be registered or deemed to be registered under the Companies Act 1993 (which applies if the company is carrying on business in New Zealand);
  • an association of persons formed outside New Zealand that is carrying on business in New Zealand for the purposes of the Companies Act 1993; or
  • ordinarily resident in New Zealand; and
• acts, or has at any material time acted, as an insurer in New Zealand or elsewhere; and
• is liable as an insurer under a contract of insurance to a New Zealand policyholder (being a policyholder that is ordinarily resident in New Zealand or that is incorporated or formed in New Zealand).

Whether an insurer ‘carries on insurance business in New Zealand’ (a concept that encompasses both insurers and reinsurers) is a question of fact that must be decided having regard to all the insurer’s circumstances.

To obtain a licence, an insurer must apply to RBNZ and provide information to establish that it meets certain requirements. These include requirements relating to solvency, holding a financial strength rating, risk management, fit and proper persons, corporate governance, ability to carry on business in a prudent manner, compliance with anti-money laundering legislation, and that the insurer is able to satisfy ongoing prudential requirements (including that the insurer holds, and has the ability to maintain, a minimum amount of capital in accordance with solvency standards set by RBNZ).

It is likely to take four to six months to obtain a licence to carry on insurance business in New Zealand under the IPSA.

A licensed insurer must also be registered on the Financial Services Providers Register (FSPR) in accordance with the requirements of FSPA.  If the insurer provides services to retail clients in New Zealand, the insurer is also required to be a member of an approved dispute resolution scheme in New Zealand.  The FSPR is a public register that enables people to search whether a person is registered and the financial services a person is registered to provide.

In addition, under the Financial Markets (Conduct of Institutions) Amendment Bill (COFI Bill) which was introduced into Parliament in 2019, licensed insurers (being insurers that hold a licence under the IPSA), as well as banks and non-bank deposit takers, will be required to obtain a licence from the FMA to act as a financial institution. New obligations will also apply to financial institutions to establish, implement and maintain an effective fair conduct programme designed to ensure the financial institution complies with the requirement to treat consumers fairly. It is currently expected that the COFI Bill will be passed in mid-2022, with a transitional period of up to three years.

An insurer must satisfy RBNZ that its ownership structure and ownership are appropriate for the size and nature of the insurer’s business when applying for a licence under the IPSA. There are no express restrictions on who owns or controls an insurer.

A person who proposes to undertake a change of control or change in corporate form of a licensed insurer must notify RBNZ and RBNZ must consider whether, if the proposed change of control takes effect or the corporate form is changed, RBNZ would still be satisfied of the matters it must be satisfied of before an applicant is entitled to be issued with a licence.

A licensed insurer who proposes to transfer all or part of its insurance business must obtain the written approval of RBNZ before giving effect to the transaction.

The Overseas Investment Act 2005 and the Overseas Investment Regulations 2005 establish the framework for overseas investment in New Zealand for persons who are not ordinarily resident in New Zealand, or for companies that are more than 25% owned or controlled by overseas person(s). The Overseas Investment Office oversees the regime and is responsible for assessing applications from overseas investors who intend on making substantial investments in New Zealand. Accordingly, a change of control of a licensed insurer may require the approval of the Overseas Investment Office if the purchaser is an overseas person.

Non-admitted insurers are effectively prohibited from operating in New Zealand due to the requirement that every person who carries on insurance business in New Zealand must be licensed under the IPSA (see Question 4).

In addition, a person cannot carry on any activity directly or indirectly in New Zealand using a name or title that includes a restricted word – ‘insurance’, ‘assurance’, ‘underwriter’, ‘reinsurance’ or any word that has the same or a similar meaning –unless the person is licensed or permitted to do so under the IPSA (subject to some limited exceptions).

A branch of an overseas insurer is subject to a similar regulatory framework as a locally incorporated entity, although overseas insurers may be eligible for exemptions from part of the licensing requirements if they are supervised by a recognised overseas regulator and they meet certain standards in their home jurisdiction.

For example, an overseas insurer may apply for the following exemptions:

• exemption from the requirement to supply fit and proper certificates to RBNZ upon the appointment of a new director;
• exemption from compliance with the applicable solvency standard; and
• exemption from the statutory fund requirements applicable to life insurers.

In addition, an overseas insurer applying for a licence must also demonstrate to RBNZ that the law and regulatory requirements and the nature and extent of prudential supervisions of the applicant’s home jurisdiction are appropriate. This requirement is deemed to be satisfied in respect of a number of specified jurisdictions.

A branch of an insurance broker or other market intermediary is subject to the same regulatory framework as a locally incorporated entity in respect of the financial advice requirements under the FMCA. The FSPA requirements will also be the same if the entity provides financial services to retail clients. If the entity does not have a place of business in New Zealand and does not provide financial services to retail clients in New Zealand, it will not be required to register on the FSPR.

A person who:

• carries on insurance business in New Zealand without holding a licence issued under the IPSA; or
• is not a licensed insurer under the IPSA and uses any name, title, trade mark, style, designation, or description that represents or implies that the person is a licensed insurer,

commits an offence and is liable on conviction:

• in the case of an individual, to imprisonment for a term not exceeding three months or to a fine not exceeding NZ$200,000 (or both):
• in the case of a body corporate, to a fine not exceeding NZ$1 million.

The New Zealand insurance industry has been the subject of significant regulatory scrutiny and regulatory change over the last few years following FMA and RBNZ’s joint review of conduct and culture within life insurers. This review identified significant weaknesses in the conduct and culture of institutions in New Zealand’s financial sector.

In response to this review the Government introduced the COFI Bill. The COFI Bill establishes a new regime to regulate the conduct of banks and licensed insurers, and will require financial institutions to have a fair conduct programme and treat consumers fairly.

FMA’s regulatory oversight will increase in respect of the insurance sector once the COFI Bill and the ICB come into force.

In the financial services sector generally, key regulators such as FMA are increasingly focused on enforcement and deterrence as a critical part of their role. Although FMA does not have a “litigation by default” approach, enforcement action through the courts has increased markedly in the last few years. In FMA’s most recent “Strategic Risk Outlook”, it identified five insurance sector risks that are relevant to enforcement: systems and controls; product suitability; remediation of conduct issues; technology and business transformation risks; and remit risks.

RBNZ is currently undertaking a review of the IPSA (IPSA Review). As part of the IPSA Review, RBNZ is consulting on the penalty and enforcement framework under the IPSA. The enforcement options under the IPSA are currently limited to written warnings or serious criminal penalties. RBNZ proposes to introduce a wider range of enforcement tools and sanctions that would be able to be used in a more graduated and proportionate manner.

Licensed insurers are required to comply with the applicable solvency standards issued by RBNZ under the licensed insurer’s conditions of licence. The following solvency standards have been issued:

• Solvency Standard for Life Insurance Business
• Solvency Standard for Non-life Insurance Business
• Solvency Standard for Captive Insurers Transacting Non-life Insurance Business
• Solvency Standard for Non-life Insurance Business in Run-off
• Solvency Standard for Variable Annuity Business

RBNZ also has the ability to impose solvency-related conditions on a licensed insurer’s licence (such as a higher solvency margin or minimum capital requirements).

Licensed insurers must provide regular reporting to RBNZ, including a six-monthly insurer return (which includes financial and exposure data) and a six-monthly insurer solvency return (which sets out the insurer’s solvency position under applicable requirements).

In connection with the review of the IPSA being undertaken by RBNZ, RBNZ is also reviewing the insurance solvency standards. RBNZ issued draft interim solvency standards for consultation in July 2021. It is currently expected that the interim solvency standards will be finalised and published in the third quarter of 2022 and will apply to an insurer from the first day of the insurer’s reporting period on or after 1 January 2023. Final solvency standards are expected to be published in 2025.

Minimum capital requirements are determined under the applicable solvency standards and differ for each licensed insurer. The insurer’s licence conditions will set out the solvency margin the insurer must maintain. If an overseas insurer receives an exemption from RBNZ from complying with the applicable solvency standard, the minimum capital requirements will not apply.

The minimum capital requirements under the applicable solvency standard are subject to a fixed capital amount that a licensed insurer must maintain, which is:

There is no policyholder protection scheme in New Zealand.

As part of the IPSA Review, RBNZ released an options paper relating to policyholder security in August 2021. One of the matters RBNZ sought feedback on was whether stakeholders believe a policyholder guarantee scheme is worth considering. RBNZ has not yet published a summary of the feedback received in respect of this options paper.

There is limited scope for supervision of groups under the IPSA. If a licensed insurer has insurance subsidiaries, it is required to meet the applicable solvency standard at the group level as well as at the level of the individual entities. However, solvency requirements are not applied to non-insurance holding companies or subsidiaries. In addition, RBNZ has powers to require information, commission reports or perform investigations from or in respect of associated persons of a licensed insurer, and, in certain circumstances, RBNZ can issue directions to associated persons of a licensed insurer.

As part of the IPSA Review, RBNZ has sought feedback on whether RBNZ needs new powers to oversee companies that are in an insurance group but do not carry out insurance business (such as non-operating holding companies at the head of a corporate group containing insurers) and whether obligations on group-level reporting and risk management should be enhanced or whether there should be new restrictions on intra-group transactions. RBNZ released a feedback statement in relation to this consultation, which stated that the RBNZ will continue to consider possible options for group-based supervision but will undertake more focussed consultation before introducing any particular requirements.

Under the IPSA, the Chief Executive Officer, Chief Financial Officer and appointed actuary (who may or may not be an employee of the insurer) must be assessed by the directors of a licensed insurer as being fit and proper persons to hold their respective roles (and the criteria on which the certification is based must be specified in the insurer’s fit and proper policy). A fit and proper certificate signed by two directors of the licensed insurer must be provided to RBNZ within 20 working days after the appointment of these senior managers. Fit and proper reassessments must be carried out every three years.

RBNZ has powers to remove a Chief Executive Officer, Chief Financial Officer or appointed actuary of a licensed insurer if RBNZ has reasonable grounds to believe that the person is not a fit and proper person to hold the relevant position.

RBNZ may apply to the courts for a person (including an employee of an insurer or a person concerned or taking part in the management of an insurer) to be banned from participating in an insurance business in relation to certain wrongdoings.

An individual can be liable under the IPSA in certain circumstances, including:

• where RBNZ gives notice to a person requiring the person to provide information, data, or forecasts to RBNZ and the person fails to do so;
• where a person hinders, obstructs or delays an investigator in the carrying out of an investigation under the IPSA or fails to comply with any lawful requirement of an investigator;
• where an officer or employee of a licensed insurer or an associated person of a licensed insurer obstructs, hinders or prevents the insurer or associated person from giving effect to a direction issued by RBNZ under the IPSA;
• where a person discloses that a direction has been issued by RBNZ under the IPSA (subject to limited exceptions); and
• where a person knowingly makes a false declaration or representation to RBNZ or an investigator.

Senior managers could also be potentially liable under the FMCA if they are “involved” in a contravention of the FMCA by another person, which includes a contravention of the financial advice requirements and the fair dealing requirements and will include the requirements under the COFI Bill and certain requirements under the ICB once those Bills are in force.

As discussed at Question 4, whether an insurer (or reinsurer) is ‘carrying on insurance business in New Zealand’ is a question of fact. One limb of this test requires the insurer to be:

• a body corporate or an association of persons incorporated or formed in New Zealand; or
• an overseas company that is required to be registered or deemed to be registered under the Companies Act 1993; or
• an association of persons formed outside New Zealand that is carrying on business in New Zealand within the meaning of section 332 of the Companies Act 1993 (applied with all necessary modifications as if the references in that section to an overseas company were references to an association of persons); or
• ordinarily resident in New Zealand.

An overseas company is required to be registered under the Companies Act 1993, if it is “carrying on business in New Zealand”. The meaning of “carrying on business in New Zealand” is set out in section 332 of the Companies Act, but that Act does not set out a definitive test as to precisely what constitutes carrying on business for the purposes of the Act.  Rather, the section provides non-exhaustive examples of activities that do, and do not, on their own, constitute carrying on business in New Zealand. Therefore, whether a company is carrying on business for the purposes of the Companies Act 1993 is a question of fact that must be determined having regard to all of the company’s New Zealand related activities.  Relatively minimal activity could potentially be sufficient for an overseas company to be “carrying on business” in New Zealand.  It is possible for an overseas company to be “carrying on business in New Zealand” without having a physical presence in New Zealand.

If an overseas company does not carry on business in New Zealand, it will not be carrying on insurance business in New Zealand and will therefore not be required to be licensed under the IPSA.

However, there may be an obligation for an overseas company to register on the FSPR and join an approved dispute resolution scheme if the company is acting as insurer without a place of business in New Zealand, but acts as an insurer for retail clients in New Zealand. Registration on that Register has been a contentious issue, with a perception that companies without a substantial New Zealand presence have registered so as to gain advantages when competing in overseas (or online) markets.

There are no express restrictions on licensed insurers outsourcing services relating to the insurance business.

As part of the IPSA Review, RBNZ has sought feedback on whether insurers should have specific rules governing outsourcing policies and practices.   RBNZ released a feedback statement in relation to this consultation, which stated that RBNZ will explore options for regulation of outsourcing, bearing in mind the need to ensure that any rules are principles-based and pragmatic in scope.

There are no express operational resilience requirements apart from the requirement for a licensed insurer to be subject to a risk management programme and to take all reasonable steps to comply with it. The risk management programme must set out the procedures the insurer will use for the effective identification and management of insurance risk, credit risk, liquidity risk, market risk and operational risk.

There are no express limitations or restrictions placed on insurers and reinsurers as to what types of assets they invest in, except that section 99 of the IPSA prohibits a life insurer from investing statutory fund assets in an associated person that is not a subsidiary of the insurer without RBNZ’s consent. However, a life insurer can invest assets of a statutory fund in:

• ordinary voting shares of a public issuer that is an associated person of the life insurer if the value of the assets of the statutory fund invested does not exceed 2.5% of the value of all assets of the statutory fund; and
• deposits with a registered bank in New Zealand or a bank that is authorized to accept deposits under the law of an overseas jurisdiction.

The solvency standards provide for an “Asset Risk Capital Charge” to reflect the exposure of the insurer to losses on investment assets and financial risks to the insurer arising from other exposures, as well as the risks to the insurer from having large exposures to a single counterparty. Accordingly, the types of assets which an insurer invests in may have implications on the insurer’s minimum solvency requirements.

Insurance sales are regulated to a degree under the FMCA. The FMCA imposes:

• fair dealing obligations, including a prohibition on engaging in conduct that is misleading or deceptive in relation to the supply of insurance services and a prohibition on making false, misleading or unsubstantiated representations; and
• obligations on a person that provides financial advice in respect of a contract of insurance (see Question 3 for further details).

The ICB contains provisions that require consumer insurance policies to be worded and presented in a clear, concise and effective manner. In addition, the ICB provides for regulations to prescribe presentation requirements for consumer insurance policies and specific information that insurers must make publicly available. The policy rationale for these changes is to ensure consumers can easily understand insurance policies. These requirements will be supervised by the FMA once this legislation is in force.

In addition, the COFI Bill will require a licensed insurer to treat customers fairly. This requirement will also apply when an intermediary is involved in the provision of the licensed insurer’s services or products to a customer. Accordingly, sales of insurance products will be subject to conduct obligations and supervision by the FMA once this legislation is in force.

There are no prohibitions on actively marketing insurance products in New Zealand on a cross border basis.

However, if an insurer actively markets in New Zealand, this will be a relevant factor in determining whether the insurer is carrying on business in New Zealand and whether the insurer needs to obtain a licence in New Zealand (see Question 4 for more details).

In addition to the fair dealing obligations and the financial advice requirements referred to in Question 19, online sales of insurance will need to be made in compliance with the Unsolicited Electronic Messages Act 2007 (“UEM Act”), which regulates the sending of “commercial electronic messages” (being electronic messages that market or promote goods, services, land, or business opportunities) that have a “New Zealand link” (meaning, for example, the electronic messages are sent by or to persons in New Zealand). Under the UEM Act an entity:

• must not send commercial electronic messages without the consent of the recipient;
• must include in each commercial electronic message a working unsubscribe facility that the recipient can utilise free of charge, along with accurate contact details of the person who authorised the sending of the message;
• must not send any commercial electronic messages to a person once they have unsubscribed or otherwise indicated that they do not wish to receive such messages; and
• should avoid using address-harvesting software, or addresses sourced (directly or indirectly) from address-harvesting software.

Consumer insurance policies are subject to the general suite of consumer protection legislation in New Zealand, including (but not limited to) the following. (These are in addition to the restrictions discussed in Questions 3 and 19.)

The Fair Trading Act 1986 prohibits unfair contract terms in standard form consumer contracts. A term will be unfair if it would cause a significant imbalance in the parties’ rights and obligations under the contract, is not reasonably necessary to protect legitimate interests, and would cause detriment to a party if it were relied on. These prohibitions currently apply only to a limited extent to consumer insurance contracts.

The Consumer Guarantees Act 1986 imposes obligations on the providers of goods and services (including insurance contracts), such as an implied guarantee that services will be carried out with reasonable skill and care.

Further obligations apply under the Credit Contracts and Consumer Finance Act 2003 to lenders of credit-related insurance contracts, such as making reasonable inquiries that the contract will meet the consumer’s requirements prior to entering into the contract, and ensuring that the contract is not oppressive.

Members of the Insurance Council of New Zealand are also bound by the “Fair Insurance Code 2020” which encourages good conduct and professionalism in the insurance industry. A breach of the code may lead to a complaint to the Financial Services Complaints Ltd or the Insurance and Financial Services Ombudsman.

Further consumer protections may be introduced pending a review of New Zealand’s insurance contract law, which is currently underway in the form of the ICB. The ICB’s key proposed changes include the removal of insurance-specific exceptions to the unfair contract terms regime in the Fair Trading Act 1986. The ICB also includes new consumer protection measures including, for example, a duty to ensure contracts are worded and presented in a concise and effective manner and a new policyholder duty of disclosure.

The New Zealand High Court (the court of first instance for most commercial claims) is adept at dealing with complex insurance claims, with its skills (and insurance jurisprudence generally) enhanced in the last decade as various insurance claims from the Canterbury earthquake sequence in 2010 / 2011 worked their way through the court system.

There is a standalone “commercial panel” for hearing complex commercial cases, which has specialist judges that manage the case through to hearing.

“Commercial cases” include high-value disputes (over $2 million), judicial reviews of regulatory decisions affecting domestic or international commerce, and proceedings brought by public authorities to enforce regulatory standards of commercial behaviour, as well as other complex proceedings “of a commercial character”.

The Courts have also developed bespoke case management processes in response to certain significant events, such as the “Earthquake List” which was created to deal with (generally) insurance claims following the Canterbury earthquake sequence. Earthquake List cases receive fast track case management and issues with precedential value are dealt with on an urgent basis, to encourage settlements of other cases.

Alternative dispute resolution (ADR) is well established in New Zealand. ADR can take the form of a private dispute resolution scheme, arbitration, mediation or judicial settlement conferences.

All insurers must be a member of a dispute resolution scheme if they provide insurance to consumers. The most common scheme for insurers is the Insurance and Financial Services Ombudsman, which can hear consumer claims up to $200,000 (or more with the insurer’s consent). The scheme cannot make a determination in relation to commercial insurance policies.

The Arbitration Act 1996 provides the framework for the arbitration of disputes held in New Zealand. The Act is based on the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law.

Mediation is a commonly utilised ADR process in New Zealand whereby parties seek to resolve their dispute by agreement with the assistance of an independent mediator. Various mediators are available to facilitate private mediations at any stage of a dispute.

The District and High Court rules encourage parties to attempt to resolve disputes by agreement by utilising a judicial settlement conference process available through the courts, which is similar to a private mediation.

The IPSA provides a regime for the transfer and amalgamation of insurance business to another person. Any transfer or amalgamation requires written approval from RBNZ. RBNZ has released guidelines outlining the approval process and relevant considerations. Of particular note:

• RBNZ will consider, among other things, whether the transferee insurer or amalgamated entity continues to satisfy requirements relating to solvency, financial strength and risk management after the transaction occurs; the interests of policyholders; and any other relevant matters.
• RBNZ may approve a transaction unconditionally, or it may impose conditions relating to one of the prescribed matters in the IPSA (such as to matters relating to the carrying on of the business in a prudent manner).
• Failure to comply with a condition, or to continue a proposed transfer / amalgamation after RBNZ’s refusal, is an offence.
• However, a transfer / amalgamation without RBNZ’s approval does not invalidate the transfer / amalgamation.

No court approval is required. An unsatisfied insurer may be able to challenge RBNZ’s decision through a judicial review.

If both companies involved are New Zealand registered companies, the companies must also follow requirements outlined in the Companies Act 1993 (including, as applicable, requirements relating to “major transactions”, schemes of arrangements, and amalgamations).

See also the response to Question 5 above regarding foreign ownership.

The primary challenges in New Zealand are largely the same as elsewhere, including the changing regulatory environment (discussed above) and digital transformation (discussed below), along with climate change and responding to the ongoing challenges of Covid-19. As discussed above, a new entrant must obtain a licence from the RBNZ to carry on business as an insurer in New Zealand, and this process takes around 4 to 6 months. The RBNZ offers support to a person intending to apply for a licence by assigning them an insurance supervisor to be their point of contact during the licensing process. Generally, we see the regulators as supportive of new market entrants, but careful to ensure regulatory requirements are met.

The regulatory environment is also increasingly comprehensive, with particular focus in New Zealand on conduct and culture – for example, FMA and RBNZ recently conducted a thematic review of life insurer conduct and culture, and consumer protection is a key focus of the new ICB.

The Canterbury earthquakes in New Zealand tested the resilience of New Zealand insurance schemes (including its unique scheme of statutory insurance under the Earthquake Commission Act 1993 for residential buildings and land). Those events demonstrated the earthquake risks to which New Zealand is exposed and resulted in a modification of the basis on which residential building insurance is offered (with the introduction of fixed sum insureds now the general rule). Legislative change has recently been announced to this regime, in the form of the Natural Hazards Insurance Bill.

The impacts of Covid-19 are, at present, unclear, but it seems many business interruption policies were drafted with exclusions for liability from such viruses.

Insurance companies are required to keep up with digital innovations, or risk losing customers to the competition.

In improving customer engagement, many New Zealand insurers have increased the use of AI and machine learning, such as through chatbots or virtual assistants to provide 24/7 assistance to customers.

In the age of “Big Data”, the amount of data being collected by insurers has increased materially. In advance of underwriting or claims decisions, there is normally a significant amount of data that needs to be processed. Some insurers have recognised issues with legacy systems that were no longer fit for purpose and upgraded to cloud-based infrastructure.

The age of “Big Data” also brings new opportunities for the insurance sector, using the data to provide better services for consumers. As insurers are aware of the significant impact that it will have on the insurance industry, there is a growing movement for established insurers to partner with innovative start-ups to keep up with technological advances.

One example is with an insurer that introduced a phone application in an effort to raise driving standards (and reduce the cost of car insurance for its policyholders). The phone application monitors its user’s driving habits and gives personalised feedback on areas of improvements. Depending on the driver’s performance, their insurance excess may also reduce. This initiative is not currently compulsory for policyholders.

Non-life insurance products have been advertised, and sold, digitally for many years now. Consumers are able to enter their details and receive a quote within minutes, which can be confirmed shortly thereafter (all without any direct interaction with an insurance representative).

The availability and accessibility of insurance quotes has led to services comparing insurance policies, and premiums, between various insurers – providing further information for a consumer to make an informed choice. From a consumer perspective, the digitisation of insurance is welcome progress.

RBNZ has commented on the importance of cyber security within the regulatory framework and its role as the financial sector regulator. It noted that New Zealand’s current framework supports innovation and industry-based solutions and will continue work to ensure that digital innovations can flourish safely.

The Privacy Act 2020 (PA 2020) regulates the collection and use of personal information. “Personal information” is defined broadly as information about an identifiable individual. The Act sets out 13 principles regarding handling personal information, including that only relevant information is collected, that the information is stored securely, and that the information is only used for the purpose for which it was collected (with some exceptions). These principles are reflected in the Fair Insurance Code 2020 (of which many insurers are participants).

Complaints about breaches of privacy under the Act can be made to the Privacy Commissioner (or alternatively, taken to the Human Rights Review Tribunal). As these principles are also present in the Fair Insurance Code, complaints can also be taken to an insurer’s ADR provider.

The PA 2020 prohibits disclosure of customer data on a cross-border basis unless the individual consents, the overseas person is required to protect the information in a way comparable to New Zealand legislation, or the overseas person is in a country with comparable privacy legislation to New Zealand legislation (called the “prescribed countries”).

This prohibition is in line with similar provisions in the European General Data Protection Regulation and the Australian Privacy Act.

There is currently limited ESG regulation or oversight of insurers in New Zealand, although many choose to report on ESG matters (at least to a limited extent) voluntarily. One significant development is the Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill, which received royal assent on 21 October 2021. The Bill establishes mandatory climate-related disclosures on a “comply or explain” basis. The proposed climate reporting requirements will apply to licensed insurers with more than $1 billion in total assets under management or annual premium income greater than $250 million. The requirement will also apply to most banks and fund managers as well as equity and debt issuers listed on the NZX.

The reporting standard, or “climate standard”, will be determined by the External Reporting Board (XRB). The first consultation document released in October 2021 proposed standards released for consultation falling under governance and risk management categories. The standards include requiring entities to provide descriptions of how their boards: (i) set and monitor progress against targets for addressing climate-related issues; and (ii) hold management accountable for implementing climate-related policies, strategies, and targets, including whether and how performance metrics are incorporated into remuneration policies.

The XRB aims to issue a formal exposure draft on 1 July 2022, and the final climate standard in December 2022, meaning relevant insurers would be required to make disclosures alongside wider year end reporting in 2023 at the earliest.

New Zealand’s insurance market has certain unique features, including its size / geographic location, (ongoing) seismic risks and statutory insurance scheme for residential buildings and land.

Given the information available to insurers, loyalty is generally seen as less of a consideration than it used to be. Businesses that are able to harness technological advances (with the aim of reducing premiums and increasing customer satisfaction) will be at an advantage in the market. Successfully managing the regulatory framework while maintaining margins will continue to be the “gold standard”.

On the residential front, various regions in New Zealand are dealing with issues relating to proposed risk-based pricing techniques (given the region’s greater susceptibility to natural disasters or otherwise). Balancing the need for widespread insurance and financial risks to insurers will be a contentious issue in the next few years, favouring innovative approaches from market leaders.