15/03/2022·1 min to read

Submissions now open: Insurance sector overhaul and what happens when things go wrong?

The Reserve Bank - Te Pūtea Matua - is seeking feedback on its enforcement and distress management powers for insurers.

Submissions can be made until 20 May 2022.

This is the third of a five-part comprehensive review of the Insurance (Prudential Supervision) Act 2010 (IPSA), which governs its prudential supervision of insurers.

Te Pūtea Matua says it wants to ensure that its powers are up to date after external reviews on how the IPSA works. Currently, the IPSA lacks flexible and proportionate enforcement tools and supervisory powers. The proposals would bring Te Pūtea Matua’s toolkit more in line with what is available under other regimes.

Adoption of many of the proposals will allow Te Pūtea Matua to have better insights due to proposed obligations on insurers to report breaches and through supervisory visits. This could also lead to a more active enforcement approach, with the ability to use tools at the lower end of the spectrum to maintain higher standards and try to avoid more significant issues developing in the insurance sector.

The consultation has four main sections:

  • Enforcement and penalties, moving to supplement existing criminal penalties for a broader toolkit including warnings and fines,

  • Supervisory powers (powers to gather information and to direct insurers to behave in particular ways), including requirements that insurers monitor their own compliance and notify any significant breaches as they happen,

  • Distress management, including how different oversight roles can better fit together and expanding some powers to make it easier to appoint a statutory manager,

  • The ‘ladder of intervention’, noting that Te Pūtea Matua’s degree of supervision depends on an insurer’s risk, with capital (as an available source to pay future claims) an important measure. Te Pūtea Matua wants to know what levels of capital are appropriate before it should step in and provide greater oversight and, sometimes, intervention.

Insurance regulation will be of interest to many, but the focus on Te Pūtea Matua’s supervisory and enforcement role, when this kicks in and what happens when things go wrong - will be particularly relevant for insurers.

If you want help with submissions, please get in touch.


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