Nash Stuart: Insurance (Prudential Supervision) Bill — In Committee Third Reading 
Nash Stuart: Insurance (Prudential Supervision) Bill — In Committee Third Reading 
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STUART NASH (Labour) 
: 
 As my colleague Mr Jones alluded to the Insurance (Prudential Supervision) Bill amends the Reserve Bank of New Zealand Act and gives the Reserve Bank prudential supervision over the insurance industry. I suppose we can have no discussion at all about the Reserve Bank without mentioning monetary policy. As Mr Jones alluded to monetary policy I suspect will be one of the election issues where National wants to keep the status quo thereby inhibiting the potential of our exporters to really really grow and achieve their potential in this day and age of globalisation. Labour conversely has a bold new plan—that is p-l-a-n; but I know that those chaps on the other side do not know how to spell it let alone what it means—to really deal with one of the three major problems that the New Zealand economy has at the moment which is a volatile exchange rate. A volatile exchange rate at this point in time means that exporters have no ability to plan with any type of certainty in relation to how much they are going to produce where they are going to sell to and how they are going to do that. The only way to do it is to work with the Reserve Bank and with the Reserve Bank of New Zealand Act. 
The introduction of this legislation the Insurance (Prudential Supervision) Bill 2009 is another significant step towards achieving clear robust regulatory arrangements across the financial sector. Again when we talk about what has happened in the financial sector we can say it has been an absolute disaster—an absolute disaster—as many thousands of Kiwis have lost literally millions and millions of dollars. I am talking about the financial sector here— 
The CHAIRPERSON (Eric Roy) 
: You should be talking about the bill. 
STUART NASH 
: I am Mr Chairperson; it is very much to do with the financial sector. 
Amy Adams 
: Yeah but the insurance part of it? 
STUART NASH 
: We are talking about the financial sector. 
Amy Adams 
: We’re talking about insurance. 
STUART NASH 
: I will get to that. If that member had something worthy to say then we might listen but she should keep quiet and wait for her turn. 
What this bill does—[ 
Interruption 
] If people listen they might actually learn something. The bill will replace outdated and disjointed legislation. It will fill gaps where no prudential regulation currently exists. If that is not part of the financial system then I am not too sure what is. Having said that I say that Government members of the Chamber have no idea at all; they want to retain the status quo when it comes to the financial systems of this country but we know that the status quo has not worked. People always go back to the status quo when they do not have a plan on how to move things forward—but anyway! 
This bill will remove the inconsistent application of requirements between different insurance sectors. The purpose of the bill is to encourage the maintenance of a sound and efficient insurance sector that promotes confidence among policyholders and the general public. Of course confidence among the general public in the financial industry has been at an all-time low due to a dreadful state of governance maintenance and management to date. 
Hone Harawira 
: Hear hear! 
STUART NASH 
: Thank you very much. The bill establishes a licensing regime for insurers and prudential regulators with compliance being largely self-administered while supervision is provided by the Reserve Bank. As mentioned this is another tool in the Reserve Bank’s arsenal of tools. We think the Reserve Bank could do a hell of a lot more in driving the economic growth of this country but it does not have the statutory power to do that. The Labour Government which we will have here in the next—I do not know—12 or so months will change things; we have a plan. 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. It is a sensible bill and it is one that we support. It establishes as we have mentioned a prudential regulatory framework for the insurance industry and in doing so it gives a number of powers to the Reserve Bank to carry out its new role. 
I will mention some of the key provisions of the bill. It will require insurers for example to obtain a licence—and criteria for eligibility will have to be met in order to do that—and to maintain solvency. Well that makes sense does it not? Of course we want our financial institutions to maintain solvency because if that does not happen we will get what happened with the finance companies: they were insolvent so Kiwis lost millions and millions of dollars. In fact I hope the new Minister of Consumer Affairs will take a call on this bill because this legislation does affect consumers and consumers are at the heart of it. 
Hon Ruth Dyson 
: And he’s actually very passionate about that. 
STUART NASH 
: He is passionate about it; he is indeed. So I hope he comes to the Chamber. 
The bill also requires insurers to obtain and publish financial strength ratings which allow consumers to have choice but not the sort of choice that they had in respect of financial companies. This means that an insurer is transparent it is out there and consumers can look at it and understand what they are getting into. 
Those companies will have to meet fit and proper standards for directors and relevant officers. Again that is most important. If we look at the financial sector in the past 3 or 4 years we could very strongly make the case that one of the reasons why it acted so dismally—in fact it failed—is that there was not a sound governance structure at all. In fact the structure was deficient; it was missing. Insurers also have to comply with a risk management programme. Again that was a provision that was missing from finance companies. Insurers have to appoint an actuary and they have to prepare an annual financial condition report and annual and 6-monthly financial statements. 
Hon Ruth Dyson 
: Is this all in the new bill? 
STUART NASH 
: This is all in the new bill; it is a fantastic bill because it provides certainty for the consumer. Insurers also have to maintain at least one statutory fund that relates to their life insurance business which is solely for the purpose of meeting life insurance liabilities. 
This bill recognises and accommodates supervision by the home regulator of overseas insurers based in New Zealand—subject of course to such regulation meeting the satisfaction of the Reserve Bank. The bill also allows for cooperation with overseas regulators. In essence this means that if an insurance company with a parent overseas meets a whole lot of conditions deemed necessary by its governance authority—say an authority in Australia for example—then that company does not have to go through the whole rigmarole in New Zealand if the company can prove that it is good sound and robust as a lot of those key provisions that I mentioned allude to. 
The bill obliges the Reserve Bank to supervise insurer compliance with the bill and with regulations. In the event of non-compliance the bill enables the Reserve Bank to escalate supervision through investigations and ultimately through distress management and liquidation. Some regulations will be new to insurers and a transition period of 2 to 3 years will follow enactment to facilitate a path to compliance for insurers that are unable to meet the licensing requirements at the time of enactment. The insurance market is very large and diverse in this country so the transition period is important to make sure that we give every company the opportunity to comply. More specifically the bill sets out a framework of prudential regulation and supervision for the New Zealand insurance sector. The approach is generally aligned to internationally accepted insurance regulatory practice and will recognise the diversity of the New Zealand insurance market. 
I will go through some of the main areas of the bill and these are as follows— 
Paul Quinn 
: Oh! Wake me up when you’re finished. 
STUART NASH 
: The member over there yawned; that is astounding is it not? Many of that member’s constituents have lost hundreds of thousands of dollars due to a very very lax set of regulations governing the financial sector. But he does not care one bit at all. I challenge that member to call a public meeting and invite to that meeting every single person in his area—I know he does not hold an electorate and has no hope of holding one of the Hutt electorates—who has lost money to one of the finance companies and explain to them why this sort of financial regulation is not important and why it is not needed. 
The CHAIRPERSON (Eric Roy) 
: This legislation is about insurance not finance companies. The member will continue. 
STUART NASH 
: I will cover some of the main areas of this bill. In respect of the licensing of insurers licensing 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 insurers are able to be monitored against those standards. There is a minimum set of standards that every insurer must meet. That is most important but it is also common sense as legislation should be. That reduces the need for consumers to make complex inquiries regarding an insurer’s financial strength and other indicators. 
One of the criticisms I have is that there is such a DIY mentality to investment in this country that we need to make that licensing incredibly clear: the level of financial literacy is low so we need to make it very clear and very simple so that consumers know what they are getting into. This bill does that. Insurers covered by this new regime will need to be licensed before the legislation comes into force. The bill will come into effect 18 months after it has received its Royal assent. After that date it will be an offence to carry on or hold out that one can carry on an insurance business in New Zealand without a licence. That is most sensible. Thank you.