by Rob Hosking
The insurance company directors and "certain senior management" of an insurer have to meet the same "fit and proper person" tests required of banks and will shortly also be required of finance companies.
Offshore-owned insurance companies may be deemed exempt from complying with the New Zealand rules if their home country regulator's prudential requirements meet or exceed New Zealand's rules.
The measures, announced yesterday by Finance Minister Michael Cullen, will be included in an Insurance (Prudential Supervision) Bill next year.
The new regime represents the outcome of work begun early in the decade shortly after HIH Insurance collapsed in Australia, and the Cabinet paper suggest those concerns still figure strongly in official thinking.
"The insurance sector is not in any apparent difficulty, notwithstanding the inadequacy of the [current] regulatory framework.
"However…the current framework does not provide any assurance that insurers will comply with appropriate prudential standards consistent with achieving a reasonable level of policyholder confidence."
Elsewhere the Cabinet paper points out this is "not an industry in crisis" but that the current rules "are outdated, lack teeth and fall well short of international standards."
Consultation on the proposals with the main insurance groups and individual firms did not reveal any "material disagreement with this analysis."
There was though concern about the potential cost of any new regime: Cullen's paper to Cabinet emphasised those concerns have been taken onto account and "sought to minimise compliance and efficiency costs"
The changes bring New Zealand into line with OECD guidelines on insurance regulation.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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