Reserve Bank needs to take a closer look at insurance cos
green-party
Tue Apr 12 2011 12:00:00 GMT+1200 (New Zealand Standard Time)
Reserve Bank needs to take a closer look at insurance cos
Tuesday, 12 April 2011, 10:20 am
Press Release: Green Party
Reserve Bank needs to take a closer look at insurance companies
The Reserve Bank can increase solvency standards and prudential oversight for the insurance industry to protect the public from future liabilities, Green Party Co-leader Russel Norman said today.
The Reserve Bank of New Zealand is the new supervisor of the insurance industry in New Zealand since the passing of the Insurance (Prudential Supervision) Act 2010 in September last year. They are currently reviewing solvency standards with a likely public report due late in June.
“The $500 million plus rescue package extended to AMI highlights the urgent need for stricter solvency standards in an otherwise lightly regulated insurance industry,” said Dr Norman.
“The Insurance Council of New Zealand foolishly celebrates on their website the fact that New Zealand has one of the ‘least regulated insurance markets in the world’. Light regulation has led to lower premiums, they claim.
“Once again, taxpayers have been left to underwrite a player that is too big to fail in a lightly regulated industry. This is not a smart way to run an economy and a poor use of public resources.
“Every time the Government bails out another AMI, a hospital doesn’t get built.
“With industries or sectors that are too big to fail, the quid pro quo is stronger regulation and higher standards of public accountability.”
While the UK, USA and Australia all have independent oversight of their insurance industry, New Zealand insurers work in a largely self-regulated environment.
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“The Reserve Bank has taken a hands-on approach to regulating the banking sector in the wake of the global financial crisis, ensuring banks have stricter capital adequacy requirements. The same approach is needed for the insurance sector,” said Dr Norman.
“The Reserve Bank should also investigate the risk profiles of insurers operating in New Zealand to ensure they’re not exposing themselves unduly, as AMI did with its over-exposure to a natural disaster in one city — Christchurch.
“New Zealand taxpayers are now paying the high cost of low quality, light-weight regulation. We’ve seen the same story in the building sector with the leaky home disaster. We’ve seen the same story in the finance sector, with the collapse of South Canterbury Finance. And we’re seeing it again in the insurance sector, with the rescue of AMI.
“Our economy will continue to be hit by one economic shock after another until we regulate it smartly,” said Dr Norman.
Link to Insurance Council’s views on regulation:
http://www.icnz.org.nz/regulation/
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