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: Tuesday, July 16th, 12:34PM

Insurance

rss
Latest Headlines

Insurers demand accurate costings for the government’s proposed NZIIS

Partners Life is calling on the government to apply the same rigour to the costing of its proposed income insurance scheme (NZIIS) as private insurers are required to provide.

Monday, October 24th 2022, 1:47PM 6 Comments

by Jenni McManus

As part of its submission to MBIE in opposition to the scheme, as proposed, Partners Life managing director Naomi Ballantyne says she is concerned about the way the levy has been calculated, and that it will probably need to increase early in the life of the scheme.

“This would have a significant negative impact on New Zealand residents, particularly low-income and vulnerable consumers,” she says.

Ballantyne’s view has been echoed by other insurers which, like Partners Life, have provided MBIE with detailed critiques on the NZIIS, with suggestions about how it might be made to work. MBIE did not consult with the insurance industry before releasing its proposals to the market for feedback.

AIA, the Financial Services Council (FSC) and the Financial Services Federation (FSF) have told the government they suspect its costings have been under-estimated. The strongest criticism came from FSF which says it cannot determine whether or not the scheme offers good value as the government has yet to reveal the target audience for NZIIS and how these consumers would benefit.

The proposed levy is 2.77% of pre-tax income, to be split between employees and employers

Ballantyne says she understands Treasury developed an economic model that threw up a range of possible costs, and 2.77% was the approximate midpoint of those estimates.

But that wasn’t good enough.

“Private insurers have teams of actuaries who calculate premiums based not only on economic factors but [also] on detailed data from reinsurers about the likelihood of illness and disability events for different categories of people,” she said in her submission.

“We are required to have a government-appointed actuary to oversee our actuarial processes and provide confidence that our premium calculations are sufficient to ensure the solvency of our businesses.

“We would expect the government to apply the same rigour to its calculations before it finalises this scheme so that New Zealanders have the opportunity to consider the realistic price of this scheme, rather than a midpoint estimate.”

The FSF says the levy will be most significant to those on lower incomes and, with the current cost of living, would be considered unaffordable.

“Although $12 a week in levies may seem like a miniscule amount to those on average public service salaries, this is most definitely not an insignificant amount to families reliant on a single income or part-time work, or with multiple children or adversities to face. Requiring this new levy in our current times also shows the disconnect our government has to the realities of society,” it said.

As the FSF sees it, high income earners will be the major beneficiaries of the NZIIS as the levy will not impact their living costs. And if they were to be made redundant or developed a health or disability issue, those with private income protection cover would be eligible to claim twice - under their private policy and also under NZIIS.

That’s because in its current form, the NZIIS does not enable those with private cover, or employers who offer income protection insurance as part of their employees’ remuneration packages, to opt out of the government scheme. So while these people would pay two premiums, they could also collect under both policies.

AIA says the MBIE consultation paper doesn’t provide enough information to enable it to accurately assess the costs of NZIIS or the financial implications of its “various design features”.

The insurer’s own high-level assessment, based in part on its actuarial experience, is that the estimated long-term costs of running the scheme and the cost of claims appear to have been under-estimated.

For example, AIA says the moral hazard risk associated with the “generous” redundancy provisions of the scheme are likely to lead to higher financial costs than might be assumed by analysing historic redundancy data.

And like most insurers, AIA says it is seeing a rise in mental health claims “which are typically more challenging to manage and consequently more expensive”. It expects claims under NZIIS would show a similar trend, resulting in higher costs, particularly as the scheme allows for multiple claims for the same illness.

The FSC, in its submissions, discusses the risk that employers might shift to alternative employment arrangements to avoid paying NZIIS levies. They could also remove current redundancy entitlements. Both would result in poor financial outcomes and a greater financial burden for employees such as fewer benefits, no access to lump sum entitlements, less job security, the introduction of disincentives to find a new job quickly and a complex claims process.

“Steps need to be taken to ensure that the benefits of NZIIS are realised by a sufficiently large portion of the population in order to justify spreading the cost across almost the entire working population,” the FSC says.

As an alternative to NZIIS, the  FSC and many insurers are proposing a public-private partnership with the government, whereby the government mandates the scheme but the industry runs it, in much the same way as KiwiSaver works.

Most of those submitting on the NZIIS also want income protection to be decoupled from redundancy. As the FSC puts it: “At present, there are few redundancy insurance policies available in the market, largely because they are considered expensive and are fraught with difficulty. Our members consider insurance a suboptimal solution to this problem.”

Tags: Partners Life

« Why life insurers oppose the government’s proposed NZIISFidelity Life on the journey to improvement »

Special Offers

Comments from our readers

On 25 October 2022 at 9:25 am Amused said:
MBIE did not consult with the insurance industry before releasing its proposals to the market for feedback.

Gosh. What a surprise. Much like this current Government, MBIE think that they know best. Public servants with lifetime employment contracts are the real issue facing industry. Not the clowns employed for 3 years as ministers.

Shades of the Credit Contracts and Consumer Finance Act changes all over again.
On 25 October 2022 at 3:53 pm Snoopdog said:
The ability to claim twice will very much be dependent on the contracts. A large number of private income protection contracts will have provisions to offset other insurance including ACC.
On 27 October 2022 at 8:48 am w k said:
save your time on "consultation", decision has already been made well beforehand.
it's ALWAYS been like this, and that's normal.

On 27 October 2022 at 10:09 am Dirty Harry said:
So while these people would pay two premiums, they could also collect under both policies.

BOLLOCKS!
Those with private income insurance overwhelmingly DO NOT have redundancy cover, so will not "collect under both policies" in that situation.

Furthermore, those who have private income protection also pay for ACC. They are paying "twice" for injury cover. And they definitely cannot "collect on both" at the same time - as far as the offset provisions in their private policies go.

While it is true that a private insurance will start (or increase) payouts (when the NZIIS scheme runs out after 7 months) if the insured remains ill and unable to work, that is not what the FSF have alleged.

I know I don't need to point this out to most people on here, and I thought the FSF would be capable of forming coherent and well-founded arguments on this.
While I too am violently opposed to the NZIIS, the impacts, pricing and setup of it are truly awful enough that a sound argument against it can be made without resorting to inaccurate claims which undermine an important submission.

Alas.

And I haven't heard anyone from FSC, FSF, and any provider talk about putting all those actuaries to work re-pricing their own policies to account for the impact of NZIIS under their offsets provisions.

On 27 October 2022 at 3:01 pm Do what is right said:
Being such a poorly thought through scheme, I severely doubt that this will ever reach reality. The designers of this govt initiative seem to have very little understanding of this insurance industry. With a change of govt also very likely next year, the new govt had already said this will be scrapped
On 3 November 2022 at 10:25 am The Immunified Daniel said:
We really need those government-appointed actuary to oversee these actuaries.

Sign In to add your comment

 

print

Printable version  

print

Email to a friend
Insurance Briefs

Why nothing else?
We wanted to dedicate this email solely to Graeme Lindsay; That's why there are no other stories.  A full newsletter will follow.

PIC Insurance Brokers partners with RE/MAX New Zealand
PIC Insurance Brokers has entered into a new strategic partnership with real estate company RE/MAX New Zealand as the exclusive insurance broker.

New customers get 3-months' premium-free on Fidelity Life
Fidelity Life has announced a special offer to cover new customers’ premiums for the first 3-months of their policies.

Premium relief for customers in drought areas
Fidelity Life offers premium relief to drought-affected customers

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