Nash Stuart: Insurance (Prudential Supervision) Bill — Second Reading 
Nash Stuart: Insurance (Prudential Supervision) Bill — Second Reading 
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STUART NASH (Labour) 
: 
 I rise to support the Insurance (Prudential Supervision) Bill 2009. The aim of this bill is to reform and extend the present law relating to the prudential supervision by the Reserve Bank of New Zealand of the insurance industry in New Zealand. This bill establishes a licensing regime for insurers and prudential regulations with compliance largely self-administered while supervision is provided by the Reserve Bank. The bill will cover most entities that undertake insurance business in New Zealand including life insurance health insurers captive insurers and the insurance activities of incorporated societies. 
This bill is important to the people of New Zealand for three reasons and it is those reasons that I will outline and elaborate on. The first is that this bill is another step in achieving clear robust laws and regulations across the financial sector. The second reason is that it will provide a much higher level of scrutiny and security to New Zealanders with exposure to the insurance industry. The third reason why this bill is so important is that it tidies up legislation in a sector where there is an unacceptable level of uncertainty at the moment. Tightening legislation regulating an important sector of the financial industry and providing certainty are the three reasons why Labour is supporting this bill. 
This bill will provide confidence for all New Zealanders that their Parliament is working together to further protect their rights and their money. We all know that New Zealanders have lost a significant amount of money during this economic recession—New Zealanders who have worked incredibly hard saved hard dreamt and aspired and who should be allowed to live and retire with dignity. Those dreams have been taken away. There was an expectation that the courts would punish accordingly those who had perpetrated those crimes but there was also an expectation that Parliament would put laws in place that would mitigate the risks of this type of financial destruction from ever happening again. 
Within the New Zealand financial industry the insurance sector was not generally in distress as were other parts of the industry. It was unlike that of the US where one of the world’s largest insurers AIA Insurance went bankrupt with dire consequences for the US’s financial system. The global financial crisis did however demonstrate the vulnerability of the sector as a whole. 
Parliament has already legislated in several areas to tighten or to make laws in areas where there was a real deficiency in the financial sector. This bill is just another step in ensuring that hard-working Kiwis can have confidence in the sector as a whole. That is what I mean when I say that this bill is another step in achieving clear robust laws and regulations across the financial sector. Not only is that sensible but it is absolutely necessary in this day and age. It is why we worked together across parties on this legislation. For once National has put together a piece of financial legislation that benefits all New Zealanders. 
The compliance costs for the industry are not high. The Finance and Expenditure Committee worked hard to ensure that this bill would not provide any level of competitive advantage to overseas firms operating in the New Zealand market. Having said that I tell members that the committee’s main objective was to ensure that the regulations and rules governing the industry provided the level of security transparency and accountability that New Zealanders now expect from any sector in the financial services market. 
The second reason why I support this bill is that it provides a much higher level of security to New Zealanders with exposure to the insurance industry. Currently New Zealand does not have the framework for prudential regulation and supervision of insurers. Current insurance legislation is outdated and is inconsistent in its application across the diversity of the New Zealand insurance market. This bill requires most insurers to have a current financial strength rating that is given by a rating agency approved by the Reserve Bank. 
There has been extensive consultation within the industry about the provisions of this bill. The select committee considered 57 submissions and heard 31 oral submissions from a range of industry and interested participants. A draft version of the bill was released for consultation well over a year ago. The draft bill reflected policy approvals by Cabinet in December 2007 and in August 2008—a Labour Cabinet. Prior to that proposals originated with the Review of Financial Products and Providers work stream. A discussion document was released by the Ministry of Economic Development in September 2006 and a further consultation paper was released by the Reserve Bank in May 2008. This bill had its genesis in the previous Labour Government. 
We have ended up with a bill that requires all insurers operating in the New Zealand market to be licensed and supervised by the Reserve Bank and to comply with minimum prudential requirements. The Reserve Bank will have the powers to act in respect of insurers that are in distress or in other difficulties. 
Having said that I tell the House that in the end the new regime has been designed around the self-managing approach—for example insurers are expected to devise and adhere to their own fit and proper risk management policies subject to bank oversight. The costs to the Reserve Bank associated with the insurance proposals are estimated to be in the range of $2.5 million to $4 million per annum on an ongoing basis once the prudential regulation proposals for insurance have been fully implemented. 
The third reason why I support this bill is that it tidies up legislation where existed an unacceptable level of uncertainty—that is uncertainty for the industry itself and uncertainty for ordinary New Zealanders. Taking away that uncertainty is paramount in order for the New Zealand public to have confidence in this sector of the financial industry. The compliance costs for the industry are not high and the committee worked hard to ensure that compliance costs were kept to a minimum. 
The main areas covered by this bill are as follows. First there is the licensing of insurers which ensures that a consistent set of minimum standards is met by all insurers. The standards must be obtained to receive a licence and once a licence is granted an insurer is able to be monitored against those standards. That reduces the need for consumers to make complex inquiries regarding an insurer’s financial strength and other indicators. That is a very important piece of the legislation because in the past ordinary hard-working New Zealanders have actually not had the financial ability to wade through complex prospectuses and financial statements to determine for themselves whether an insurance company or any sort of organisation was in fact meeting the requirements necessary for sound investment. This licensing arrangement monitored by the Reserve Bank actually puts that in place therefore protecting New Zealanders to a large extent. 
Insurers covered by the new regime will need to be licensed before the bill comes into force. The bill will come into effect 18 months after it has received the Royal assent. After that date it will be an offence to carry on or hold out to carry on insurance business in New Zealand without a licence. That is why I say that a high level of certainty has been granted to the New Zealand public as a result of this bill. 
There are other important parts in this bill as well. Under fit and proper risk management requirements for example insurers will be required to consider the qualifications background and experience of key personnel. That lines up with another bill we passed in this House that regulated the financial services sector. There are to be statutory funds and separation for life insurance and similar long-term insurance funds. Capital advocacy insolvency standards and appropriate financial regulatory reporting are again most important to all New Zealanders to ensure that they can have confidence in this sector. There will be insurer credit ratings as I have talked about before and a supervision framework including effective distress management provisions. 
As I outlined there are three reasons why I support this bill and why Labour supports this bill. It is another step in achieving clear robust laws and regulations across the financial sector. We do not want to see ever again the carnage wrought by this last financial recession. Secondly this bill will provide a much higher level of security for New Zealanders with exposure and investment in the insurance industry. Finally the third reason it is important is that it tidies up legislation in a sector where there was an unacceptable level of uncertainty for both the sector itself and for New Zealanders. As a result of this I commend this bill to the House. Thank you.