New regime proposed for insurance products
There is no case for a separate Life Insurance Act, and same law should apply to all financial sector products, according to a draft Law Commission report.
Thursday, August 19th 2004, 6:42AM
by Rob Hosking
“We believe that the regulation of life insurance should be consistent with the regulation of other financial products, because inconsistency is likely to distort the development of new kinds of financial products (for example, products which have both investment and insurance aspects) and otherwise hinder the efficient management of financial resources,” the commission’s draft says.
However it specifically rules out taking a similar approach to Australia.
“While the New Zealand and Australian regulatory regimes are similar in relation to financial market integrity and consumer protection issues, they are markedly different in relation to financial safety issues.
In this area, Australia has adopted the model of a powerful central government regulator (APRA) bolstered by detailed rules governing many aspects of the businesses of financial product providers.
“Even if we thought an APRA style regulator could be beneficial for the life insurance industry in New Zealand, we would be reluctant to recommend it unless the same regime was to be introduced for all other financial products.”
However other recommendations in the draft include bringing life insurers under the Securities Act. That would include extending the existing information disclosure regime to include risk policies; applying the same advertising rules which apply to savings products under the Securities Act to insurance policies; and requiring life insurers to issue the equivalent of an investment statement (to be renamed product disclosure statement) for policies.
“We consider that most of the information required by the Securities Act to be included in a prospectus for savings policies should also be publicly disclosed in respect of risk only policies. However we are not sure that the prospectus is the most appropriate disclosure vehicle, and consider that there should be a review of the whole prospectus regime.”
Until that review takes place, the commission wants insurers to be subject to the prospectus regime, which would require amending Securities Act regulations.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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