Clendon David: Insurance (Prudential Supervision) Bill — In Committee Third Reading 
Clendon David: Insurance (Prudential Supervision) Bill — In Committee Third Reading 
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DAVID CLENDON (Green) 
: 
 I am pleased to take a short call on this the Insurance (Prudential Supervision) Bill. Although it is somewhat against the trend of the debate so far this morning I will try to focus on the insurance industry sector and some of the very major challenges that are coming before it. In fact they are already before the sector. 
We have supported this bill so far and will continue to do so. We believe that the insurance industry has been largely unregulated. That is against international norms and expectations and indeed against local expectations as well. There has been a degree of self-regulation in the New Zealand insurance industry and to be fair for the most part that has worked. The industry has been proactive in developing its own framework for self-management. It has set out to achieve a fairly high standard of ethical behaviour a degree of transparency and the requirement of some proof of financial solvency within the sector. 
However we cannot be at all complacent. Clearly there is a history of reliability within the New Zealand insurance sector. The same could be said for the financial sector up until quite recently as was referenced by the previous speaker. We know that goodwill and past performance are far from being reliable indicators of future performance and the potential for future risk and indeed collapse. The insurance industry has never been one for the faint-hearted. There are some significant and some very new and demanding challenges ahead of it so this bill is timely to the extent that it does endeavour to give some surety or at least a degree of acknowledgment that the sector needs to be regulated. 
The bill is complex it is wide ranging and there were elements within the original drafting that caused us some concern. Those concerns were also reflected by other stakeholders industry people and political interests as well. One of the primary concerns we saw was that the bill as originally drafted on the matter of solvency standards created the potential for New Zealand - based operators and companies to have a significant disadvantage particularly against providers from Australia. That could have imposed a competitive disadvantage on our companies and potentially could have driven our New Zealand insurers offshore. Fortunately the select committee did some useful work and responded to some of the submitters. The provisions of clause 53 essentially remove the likelihood of sending our insurance industry overseas. 
It is clear that one of the more serious challenges facing the industry which makes the need for regulation to better protect consumers against the likelihood of industry failure is the reality of climate change and the impact that will have on the assets that the industry protects and in which the industry invests. It is a considerable amount of cash every year. Insurers internationally are recognising that global warming and climate change are a serious business issue as well as an environmental issue—that the two are intertwined. To that end international companies are endeavouring to lead by example to reduce their own environmental footprint and to encourage suppliers and customers to do likewise. IAG is far and away the largest player in the New Zealand market. It has gross written premiums in excess of $1.2 billion and holds something like 2½ million policies. The company is also one of the most active in advocating for and acknowledging environmental and social as well as financial considerations being incorporated into risk assessments. 
Climate change is already having and will continue to have serious consequences for our natural and our built environments our national and local infrastructure and our ability to conduct business and to maintain the integrity of our communities. We are already seeing both locally and internationally instances of much higher intensity and much more regular adverse weather events than we have seen historically. The insurance companies the industry that are carrying the risk for any damage to our natural and physical resources are of course highly exposed and will become more so as climate change and the effects of it continue to develop over the coming few years and decades. If we do not respond quickly if we do not respond intelligently and if we do not respond by changing our policies and our practices towards future-proofing our private and public assets against the effects of climate change we can confidently expect to see the insurance sector as all others come under increased pressure and increased likelihood of failures and collapses. Failure to future-proof our economy by attending to the effects of climate change will see the insurance industry either taking some huge financial hits or potentially withdrawing cover from the areas most exposed to the risks and challenges of climate change. 
I will quote from IAG’s website which reminds us that that company is the largest player in the New Zealand industry. This company has become very active in the area of sustainability and in acknowledging the threats to the industry. The company states that “The weather has become a vital concern to the insurance industry. … We accept the strong scientific consensus that human-induced climate change is real. The consequences of climate change are being seen and heard with higher frequency and greater intensity. Those who live in risky areas could well find insurance less affordable and less readily available unless new solutions are found.” 
The bill we are debating today is one useful and positive step towards finding new solutions. It provides a mechanism for the continued evaluation of the financial and operational health of the insurance sector. It should to some extent provide an early warning system if you like that will let us know whether any players in the sector are starting to get into any real difficulties. That is a necessary element albeit in itself not a sufficient one of what must be a much more comprehensive and much more sustained response to protecting our individual and our collective future in what will be a much more dynamic much more unpredictable and much more volatile physical and economic environment. Kia ora.