Burns Brendon: Insurance (Prudential Supervision) Bill — First Reading 
Burns Brendon: Insurance (Prudential Supervision) Bill — First Reading 
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BRENDON BURNS (Labour—Christchurch Central) 
: 
 I am very pleased to take a call in the first reading of the Insurance (Prudential Supervision) Bill. I acknowledge the comments of the member preceding me in saying that the world has indeed changed in the last 18 months. Those who at the beginning of last year might have still believed that the market was God and that anybody who talked about the need for rules and regulations was talking the devil’s talk might now accept that the market does need rules and regulations. The financial markets of the world have been brought to their knees in the last 18 months and that underlines the need for appropriate regulation such as implemented by this bill. 
Labour will be supporting this bill’s referral to a select committee. I presume it will be referred to the Finance and Expenditure Committee. That is for the House to decide but if so as a member of that committee I look forward to looking at the bill in more detail. It is a sensible bill establishing the need for monetary policy and Reserve Bank powers and we will look at its needs in terms of a prudential regulatory framework for the insurance industry. In doing so the bill gives a number of powers to the Reserve Bank to carry out its new role. 
Sadly this bill does not go as far as it might. It goes nowhere towards dealing with one of the key economic issues facing our nation at present which is the issue of monetary policy. We are looking again on Thursday at the Reserve Bank and whether it might move on interest rates. We have no certainty about these issues and the bill should give the Reserve Bank some more power so that it is able to be more flexible in implementing current monetary policy. Indeed Labour does believe that we need as a nation to improve our export performance. It is our lifeblood as the cliché so often goes but it is important to give exporters certainty. Exporters such as the Manufacturers and Exporters Association which is headquartered in my electorate of Christchurch Central are 100 percent behind the comments of Phil Goff in a recent speech when he said we need to review the Reserve Bank’s approach to monetary policy because it is doing nothing to assist our export sector and to grow the economy of this nation and to give it some of the sustainability that will be so important into our future. 
As a party Labour wants to see New Zealand lift its economic performance and lift our incomes so that we can all do better but to do that we must look at monetary policy. It is not set in stone and it is not working in the interests of this nation. Everybody but the National Government seems to believe that that is now the case. I think that when the Prime Minister asserts that he will defend the status quo on monetary policy he is really defending something that is truly indefensible. The status quo is not delivering for New Zealand. When our dollar is stretching through to US73c and US74c when it was US50c at the start of the year how on earth can our exporters compete in a market where they are 50 percent more expensive than at the start of the year? 
It is the volatility of the dollar underpinned by our current monetary policy that causes the problem for exporters. They could survive if they knew where the dollar might be over a time period but the fact that it ranges from one end of the spectrum to the other across a short time frame causes them immense damage. There are estimates that every 1c movement in the value of the dollar costs this country $100 million in lost export opportunities. 
We are supportive of this bill as it addresses the need for some regulation across the insurance industry and that is highly appropriate. The bill will require insurers to obtain a licence having met the criteria for eligibility; to maintain appropriate solvency; to obtain and publish financial strength ratings so that we get some sort of sense of where the insurance companies are on the spectrum of financial strength; and to meet fit and proper standards for directors and relevant officers. We have seen in the wider financial industry the capacity for directors to not be appropriate and for strange practices to take place. 
We want to see under the bill the requirement for insurance companies to have a risk management programme. Obviously they are managing funds and they need to be giving assurance to those people who take out insurance policies with them that they will appropriately manage the potential for upside and downside risk. Appointing an actuary is another key requirement under the provisions of the bill and obviously to prepare annual financial condition reports and 6-monthly financial statements so those watching the insurance industry will be able to get some assessment of the relative strength of the insurance companies. 
The main areas that are being brought through in the bill include the licensing of insurers to see that there is a consistent set of minimum standards met by all insurers. Obviously they must obtain a licence. Once that is granted they can be monitored against those standards. This then reduces the need for consumers to be having to make complex inquiries to be assured about the strength of a particular insurance company. That was something that was observed during the collapse of many finance companies over the last couple of years. Consumers have had a devil’s time trying to work out whether their particular financial company is kosher strong and able to survive the market downturn. Often they do not find out until it is too late and their money goes down the gurgler when if there had been appropriate financial regulation they may have been able to have at least some signals of the strength of that particular company. It is good to see these provisions introduced for the insurance industry. 
Another main provision the bill is introducing is that insurance companies will have to be licensed before the bill is enacted. We are not doing this in any rapid time provision. It is estimated that there will be an 18-month lead time for the insurance companies to meet those requirements and to get licensed and covered by the ambit of this bill. 
One of the other key provisions of the bill will be about capital adequacy and solvency standards. That truly will be an essential element of the legislation. Obviously an insurance company needs to give assurance to the market that it has the reserves and can meet the tests that apply in market situations from time to time. Overseeing all of this will be the Reserve Bank. It will require financial information from the insurance companies and potentially the public will have access to that should they have the need to assess in greater detail. 
The background to the bill really comes down to the need to ensure we have a sound insurance sector. In the same way that we are now beginning to contemplate changes to financial companies we need to know that when one is taking out policies or making investments with an insurance company that company has the capacity to endure through the blips that happen across financial markets on a fairly regular basis. New Zealand’s insurance industry is known to be generally sound. There are no signals of distress and that is very important. It is one of the good things across the New Zealand financial market that although we have had 20 or so smaller financial companies implode we have some stability across the banking sector more generally and the insurance companies have certainly reacted to that. 
They recognise and certainly Parliament is now recognising that we need to have assurance on these issues. We cannot just put our faith and trust and hope in the systems. We need to know as a nation of investors that the insurance industry will endure the regular storms that happen on the financial markets. 
In the lead-up to the bill’s introduction there has been extensive consultation. That has been appropriate and no doubt it will continue through the select committee process. That is also important and I am pleased to be able to commend the bill to the House today.