Policyholder protection to add to premiums
A proposal to protect policyholders should their insurer fail could add one per cent to two per cent to the price of insurance premiums.
The Reserve Bank of New Zealand Te Pūtea Matua has asked for public feedback on proposals to beef up the regulation of both life insurers and general insurance companies.
One of the proposals is a “policyholder guarantee scheme” for New Zealand, designed to cover some or all of a policyholder’s claims in the event of their insurer failing.
New Zealand has seen insurers fail in recent years, with NZX-listed CBL put into liquidation in 2019, and AMI having to be rescued after the Canterbury earthquakes, according to a report in Stuff.
“There are several ways a scheme could be funded, but the most common approach is to charge insurers a levy, which builds up into a fund over time,” the Reserve Bank said.
“These schemes are reasonably common overseas, but the kinds of policies they cover, and the amount of a claim they will pay varies considerably.
“Some cover all policies, while others just cover compulsory insurance, for example third party motor insurance in countries where there is no ACC. Some cover a wider range of insurance policies but limit payouts to a maximum sum or a certain percentage of claims,” read a statement.
The Reserve Bank said the costs of a scheme were difficult to estimate, because they depended on how often insurers failed, and on how generous the scheme coverage was.
“We believe that insurers would pass on at least some of the cost to policyholders and the scheme may approximately increase insurance premiums by around one to two per cent for policies that were covered,” it stated.
In practice, the Reserve Bank said should a major insurer fail, the Government might be pressured to assist the policyholders, which happened in the case of AMI following the Canterbury earthquakes.
Other proposals include giving thing the Reserve Bank more flexibility to intervene with insurers, so it could increase its oversight of weaker insurers early before they got into serious distress.
