tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Friday, March 29th, 10:40AM

Insurance

rss
Latest Headlines

Officials still deciding whether insurance products Category 1or 2

The Ministry of Economic Development (MED) is currently weighing up how a raft of financial products, including life insurance contracts, will be categorised under the coming regime.

Tuesday, August 4th 2009, 10:39PM 1 Comment

by David Chaplin

Rory McLeod, MED director competition, trade and investment branch, told Good Returns no decision had yet been made whether life insurance products would be designated Category one or Category two under the Financial Advisers Act (FAA).

"We'll look at the advice level and the complexity of the product - where it's complex it'll be Category one and where it's not it'll be Category two," McLeod said.

The decision is crucial for insurance advisers because if products such as term life and income protection fall into Category one, they will need to conform to the stricter rules required of authorised financial advisers (AFA).

An MED spokesperson confirmed that life insurance products issued after December 31, 2008, were defined as Category one products in the act.

"One of the securities placed in Category two is life insurance issued before 31 December 2008. This allows companies to continue administering policies issued in the past without needing to employ AFAs or become a qualifying financial entity," the spokesperson said. However, McLeod said the Commerce Minister retained the power to redefine current category one products as category two if appropriate, based on advice from the MED.

Auckland-based consultant, Russell Hutchinson, said term life insurance products were unlikely to be deemed category one. Hutchinson said term life products were already exempted under the Securities Act, which the FAA refers to.

"The act definition was carefully crafted to discern between whole-of-life, endowment, and such like - which are plainly contracts that contain a large element of investments (and are therefore Category one) and those which are contracts of term insurance," he said.

"If term life insurance is defined as Category one, when the average value and complexity of general insurance is greater, then I can't think of a product that shouldn't be Category one."

Tags: regulation

« Permanent term ends for AIGBig growth in trauma sales »

Special Offers

Comments from our readers

On 5 August 2009 at 11:13 am Keith said:
I agree with Russell and my submission to the Securities Commission was along these same lines.
The definition of life insurance in the Securities Act is clearly intended to refer to those contracts that contain an element of investment, ie. Whole of Life, Endowments. All others can be classified as Term Life or just as insurance, both of which a clearly intended to be Category 2 products. Indeed the exclusion fo life insurance policies issued prior to 31 Dec 2008 was to allow advisers to make recommendations on existing WOL & Endopwment policies without them having to become AFAs.

To extend an arguement that "complex" contracts should be classified as Category 1 is, in my opinion, ridiculous.
Surely Consumer Credit Insurance would have to one of the most "complex" products around and it is specifically classified as Category 2. It is certainly as complex as income protection - if not more so.

To me the solution is simple. If you are dealing in investments (& savings) contracts or are carrying out full then you are dealing in Category 2 products and must be an AFA.
If you are dealing in term insurance (life, trauma, TPD, Income protection, mortgage cover....) then you are dealing with Category 2 contracts and, so long as these are all you are dealing in, then you need to be registered but don't need to ba an AFA.

i think some people and institutions, possibly with their own agendas, are trying to make the thing a lot more complicated than the Financial Advisers Act intended.
Commenting is closed

 

print

Printable version  

print

Email to a friend
Insurance Briefs

Partners helps fund depression recovery centre
New Whakamātūtū Wellington Depression Recovery Centre gets financial boost from Partners Life.

AIA adds cover for prophylactic surgery following cancer
AIA makes changes to policies and adds preventative surgery for several types of cancer.

Chubb appoints David Morrow as Country President for New Zealand
Chubb has appointed David Morrow as Country President for New Zealand.

nib adds specialist skills to its board
Two new board appointments at health insurer nib add new perspectives, chairman says.

News Bites
Latest Comments
Subscribe Now

Cover Notes - Specific news aimed at risk advisers

Previous News
Most Commented On
About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
 
Site by Web Developer and eyelovedesign.com
x