New Zealand: New Zealand Insurance Law Reform Begins

Last Updated: 15 April 2008
Article by Crossley Gates and Peter Leman

2008 will see some major changes for the New Zealand insurance industry with the tabling of two Bills in late 2007 for the financial industry at large, and a further bill specific to insurance contracts to be tabled shortly.

In December 2007, the Financial Service Providers (Registration and Dispute Resolution) Bill and the Financial Advisers Bill were publicly released. In addition, a Cabinet paper was released early this year confirming Cabinet's intention to introduce the Insurance Contracts Bill into Parliament shortly. (At this stage, it is uncertain when these far-reaching reforms will be implemented. It may be several years yet.)

Financial Service Providers (Registration and Dispute Resolution) Bill

As the title indicates, the Financial Service Providers (Registration and Dispute Resolution) Bill (NZ) (FSP Bill) sets up a registration system for financial service providers, and establishes a requirement that they all belong to an industry-based approved dispute resolution system. The key purpose of the FSP Bill is to improve consumer access to redress in the financial sector.

Registration

The new registration system will identify all entities providing financial services in the New Zealand market. It will apply to anyone in the business of providing a 'financial service' or a 'financial adviser service'. The FSP Bill has defined 'financial service', very widely to include, among others:

  • Banks.
  • Managed funds.
  • Securities issuers.
  • Finance companies.
  • Foreign currency exchanges.
  • Insurers and insurance brokers.

It defines 'Financial adviser service' as:

  • The giving of financial advice in the course of business.
  • The receipt and handling of investment money in the course of business.

A financial service provider cannot provide a financial service unless that person is registered. Registration will be by way of application (in the case of providers of 'financial services') or by way of notification from the relevant approved professional body (APB) (in the case of providers of 'financial adviser services').

The main requirements for registration are that the person or its controlling owners, directors and senior managers are not otherwise disqualified (for example, by virtue of being a bankrupt or the subject of certain banning orders or criminal convictions), and that the person is a member of an approved dispute resolution scheme (ADRS).

The Bill sets up a register that will be kept in electronic form and will be searchable by the public.

Dispute Resolution

The FSP Bill also establishes access to a comprehensive, industry-based ADRS to improve consumer access to redress in the financial sector. Existing voluntary, industry-based dispute resolution schemes, such as the Banking Ombudsman, and the Insurance and Savings Ombudsman, already provide access to redress for consumers. However, they do not currently extend to credit unions, finance companies, financial advisers, and some superannuation schemes. At this stage, there is no Code of Practice.

As noted above, the main requirement for registration is that the person be a member of an ADSR in order to transact with consumers. The FSP Bill also recognises that small businesses (businesses that have no more than 19 full time equivalent employees) can be as vulnerable as natural persons, and 'consumers' in this context includes small to medium sized enterprises.

It is expected that more than one scheme will be approved, and that financial service providers will be able to elect which scheme to join.

Financial Advisers Bill

The Financial Advisers Bill (NZ) (FA Bill) establishes a co-regulatory regime for financial advisers, where the Securities Commission and industry-based APBs will work together to create and monitor standards for financial advisers. Submissions for the FA Bill are invited and a closing date has not yet been set.

The FA Bill does two main things:

  • Imposes statutory conduct obligations and statutory disclosure obligations on financial advisers.
  • Establishes a co-regulatory regime for financial advisers, to be overseen by the Securities Commission and industry-based APBs.

Under the FA Bill, financial advisers will be required to disclose:

  • The adviser's experience, qualifications and professional standing.
  • The name of the APB and ADRS of which the adviser is a member.
  • Whether the adviser has been convicted of certain criminal offences.
  • The nature and level of any fees charged.
  • Potential conflicts of interest, including commissions. (For the latter, the adviser must disclose the amount or rate of remuneration and who is paying it.)

The types of products the adviser advises about, and if the adviser only provides advice about one or more product provider's products, the names of those

  • Financial Service Providers (Registratiproviders.
  • A brief description of the adviser's procedures for handling client money.

A breach may result in civil and criminal penalties. For an individual, the maximum fine is $100,000; for a corporate, $300,000.

There is currently no requirement for financial advisers to have professional indemnity cover.

Insurance Contracts Bill

The Insurance Contracts Bill (NZ) (IC Bill) is expected shortly and will reform two key areas of insurance law:

  • The duty of disclosure.
  • The agency status of insurance intermediaries.

Duty of disclosure

The obligations of the parties are to be codified in the IC Bill. At present they are partly found in the common law (non-disclosure) and the Insurance Law Reform Act 1977 (NZ) (misrepresentation). proper law of which is New Zealand.

Insurers and insurance intermediaries must warn insureds about the duty of disclosure and the consequences of breaching it. The IC Bill will contain a model disclosure warning. The disclosure warning must be delivered to insureds before inception, renewal and any change in the cover, or within five working days afterwards. It is not yet clear whether a broker who is the agent of the insured will be required to give the same notice.

The insured will have a cooling-off period of five working days from receipt of the disclosure warning. During this period the insured may cancel the insurance and receive a full refund of the premium and any fees.

A failure to provide the warning may result in criminal penalties and civil remedies.

The remedies for non-disclosure and misrepresentation will be the same and will apply to all classes of insurance, except marine insurance (which appears to remain unchanged). (It will be interesting to see how reinsurance is dealt with generally in the Act.) The nature of the remedies is one of the big changes.

The current remedy of avoidance from the start will only be available if either:

  • The non-disclosure or misrepresentation is fraudulent.
  • The answer given to a specific question in the proposal form is substantially incorrect and material (based on a 'reasonable insured' test).
  • It is exercised within the first 30 working days of cover (to allow for covernotes).
  • The contract is one of reinsurance.

Where none of these apply and the non-disclosure or misrepresentation is substantially incorrect and material (based on a 'reasonable insured' test) , the insurers remedy is limited to either:

  • Reducing the claim payment amount or declining the claim.
  • Cancelling the policy going forward only.
  • Adjusting the premium going forward only.
  • Continuing the policy but adjusting the terms going forward only.

The type and level of remedy will be proportional to the seriousness of the breach. Presently, no details are given. However, it is anticipated that details will be fleshed out in the legislation.

All existing insurance law statutes (except for the Marine Insurance Act 1908 (NZ)) will be repealed and incorporated, with appropriate amendments, into the new IC Bill.

Insurance intermediaries

In the discussion documents released before the Cabinet paper, the proposal was to move away from commission entitlements as a way of determining agency, and instead rely on the existence of written appointments. The insurance intermediary was the agent of the party who appointed him or her in writing.

Where no written appointment was in place, the default position was that the intermediary was the agent of the insured.

The duty of disclosure applies only to contracts the on and Dispute Resolution) Bill

As the title indicates, the Financial Service Providers (Registration and Dispute Resolution) Bill (NZ) (FSP Bill) sets up a registration system for financial service providers, and establishes a requirement that they all belong to an industry-based approved dispute resolution system. The

The Cabinet paper signals a key change. The proposed default position will now be that the intermediary is the agent of the insurer. This will have potentially significant ramifications for underwriters. This is because the agency status will determine where responsibility ultimately lies for all the intermediary's actions in relation to disclosure warnings, passing on information, giving of advice.

Curiously, the intermediary is still required to provide written disclosure to the insured advising who the intermediary is acting for and the general effects of this agency status. Failure to do so will attract criminal penalties.

Once this IC Bill is introduced into Parliament we will be providing more in depth analysis of its ramifications for the insurance industry.

Conclusion

These Bills are now either before the Finance and Expenditure Select Committee, or shortly will be. Submissions on the FSP Bill closed on 28 February 2008. The dates for submissions on the other Bills are not available yet.

A further update is currently being prepared by our Managed Funds team, which will focus on the detail of the FA Bill, particularly the disclosure obligations of financial advisers, including many of the practical issues in applying the proposed changes.

We recommend all interested parties make submissions on these Bills. They will have a major impact on the industry. We are following the reforms closely and we are happy to assist.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.



To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.