Need to protect local policyholders
11 Jun 2017
New Zealand’s largest general insurance company is supporting a proposed law change to see policyholders better protected in the event of their insurer's parent going belly-up overseas.
IAG’s Senior Government and Stakeholder Relations Manager Bryce Davies says introducing legislation requiring all insurance companies operating in New Zealand to hold, or have access to, a certain number of assets in New Zealand, is a “starting point”.
Speaking to interest.co.nz, Davies says some of the exemptions given to overseas insurers that operate as branches, rather than locally incorporated companies like IAG, need to be looked at.
“[These mean] they’re buying potentially less reinsurance and therefore less protection,” he says.
“We think that needs to be looked at to make sure that actually, if you’re writing business in New Zealand, you’ve got the assets sitting behind you to actually deliver on those promises. And then making sure those assets are actually here and earmarked for New Zealanders.”
IAG, makes these comments as the Reserve Bank is in the process of consulting with stakeholders around how it should update the Insurance Prudential Supervision Act 2010.
An issues paper on the RBNZ’s review released in April, reveals that as well as considering the introduction of a New Zealand assets test, it’s looking at requiring all insurers to be locally incorporated.
Davies says: “I don’t get the sense that the Bank has the appetite to go that far.
“For us it comes down to the issue of policyholder protection. If an insurer gets into trouble, the assets are there to meet the policyholder needs and they’re not being whipped off somewhere else.”
QBE and AMP are among the larger insurers that operate as branches in New Zealand. IAG's main competitor - Vero - is locally incorporated.
A matter of policyholder protection not competition
Davies says it’s hard to put your finger on just how much more robust an assets test will make insurers, which already need to meet the RBNZ’s solvency requirements, but says: “If an insurer ever gets into distress, someone’s going to step in and try and manage their way out of the situation.
“They need to be able to get their hands on the assets… if those assets aren’t in New Zealand, or aren’t legally owned by the New Zealand entity, or there’s difficulty getting hold of them, then that’s not protecting New Zealanders.”
Asked whether competition is actually at the heart of IAG’s position, in that it wants to level the playing field between itself and rivals that operate in New Zealand as branches of overseas insurers under more lax regulation, Davies says: “Not necessarily, no. No, not really. For us it’s more of a consumer issue.”
“Let’s be real about this, most New Zealanders don’t read their insurance policies. They wouldn’t know whether their insurer is a branch or is locally incorporated. They wouldn’t know that their insurer might have a policyholder preference to Australian policyholders and not New Zealanders…
“It’s probably unrealistic to expect that they’re going to do that level of due diligence in making their decision. So, we’ve got to do that work for them. We’ve got to make sure, at least a minimum set of protections are in place…”
Full interview at: - interest.co.nz - Double Shot