The Reserve Bank is planning to undertake a comprehensive review of the Insurance (Prudential Supervision) Act 2010 (IPSA). IPSA provides a framework for prudential regulation and supervision of insurers carrying out business in New Zealand.
The Reserve Bank intends to actively seek input from the industry, other stakeholders, and interested government departments and agencies in carrying out the review.
Motive for review
The Reserve Bank considers that, to date, IPSA has generally had a positive effect on the soundness of the insurance sector, and that the legislation has operated well. However, there have been a number of relevant developments since IPSA was enacted five years ago that make a review timely, including:
Objectives of the review
- International guidance has been updated
- The Reserve Bank has reviewed and developed other legislative regimes, and it may be appropriate to align IPSA with those regimes
- The insurance sector has changed, including entry/exit of insurers and development of new business models and insurance distribution channels
- The Reserve Bank has gained operational experience and implemented a risk-based approach to supervision
- New Zealand experienced a major catastrophe which continues to have implications for insurers (with claims still outstanding)
- The value of a soundly-regulated insurance sector now appears to be broadly accepted.
The review will proceed on the basis that the current legislative purposes of IPSA remain appropriate.
However, the objectives of the review are to determine whether IPSA and its associated regulations are working as intended. In particular, the review intends to:
Issues paper and feedback
- Assess the performance of IPSA in light of its purposes, to ensure soundness and efficiency of the insurance sector, and the cost effectiveness of the regime.
- Assess the consistency of the regime with other international guidance and other legislative regimes administered by the Reserve Bank, and consider if further alignment would be appropriate.
The Reserve Bank expects to publish an issues paper in the fourth quarter of 2016. Input from stakeholders and the public is likely to be sought.
Our initial thoughts and further information
IPSA represented a significant step-change in the New Zealand insurance market when it was introduced and it is logical for a review to take place. Our initial expectation is that any changes will be evolutionary rather revolutionary but there are a few areas that could usefully be considered, including the application of IPSA to overseas insurers and the interplay between IPSA and other legislation, such as the regime applying to financial service providers (which is itself under review).
For further information, please view the Terms of Reference issued by the Reserve Bank.
If you have any questions, or you would like to discuss any aspect of IPSA or require assistance making a submission on the various papers, please contact us.