NZ Insurers Seek Extra Exemptions for Credit Life Contracts
The Reserve Bank of New Zealand, the body charged with the prudential supervision of the insurance industry, has been asked by the Insurance Council of New Zealand (ICNZ) to amend regulations that put credit insurance into the life insurance category. ICNZ believes that the inclusion of credit insurance contracts with life insurance is inappropriate, given the nature of the products, and makes for a regulatory scheme that places an undue burden on general insurers.
ICNZ, speaking on behalf of Vero, Lumley, Allianz and IAG, argues that credit insurance is distinguishable from life insurance because it is generally a short-term, low-value instrument that lacks an investment component. The Insurance (Prudential Supervision) Act 2010 exempted some forms of credit insurance from life insurance requirements but left others within the category.
If credit insurance remains within the life insurance category, insurers are troubled by certain requirements of the new law, especially the mandate imposed on life insurers to establish statutory funds and the imposition of solvency standards that the insurers view as inappropriate for such a minor part of their overall business.
As the law stands, it explicitly provides that "certain credit insurance contracts are not life policies," but it limits this exception to credit insurance contracts that are payable in a lump sum on disability or death.
ICNZ argues that policies that pay on bankruptcy, business interruption or redundancy should not be regulated as species of life insurance and should be among the products qualifying for exclusion under the act.
Insurers have indicated that they may not continue offering credit insurance contracts without an amendment to the act, and the Reserve Bank is reportedly considering ICNZ’s appeal.