Proposals would disrupt business models: Faafoi

Commerce Minister Kris Faafoi has acknowledged that the insurance sector could find recommendations for industry change, contained in recent options papers, confronting.

Tuesday, July 16th 2019, 6:00AM

Options papers were released in April as part of the review of insurance contract law, which spun off a separate consultation on the conduct of financial institutions.

The options papers suggested a range of changes including amending the duty of disclosure, removing insurance-specific exemptions from unfair contract terms laws, a duty to design remuneration and incentives in a way that would promote good customer outcomes and making directors and senior managers personally liable if their entity did not meet its duties.

In a cabinet paper ahead of the options papers' release, Faafoi said he expected the industry to oppose some of the changes, particularly in relation to the exemptions from unfair contract terms rules.

“It will be important that we listen to both sides of the argument. The [Australian Royal Commission] has recommended removing Australia’s equivalent exemption so this is a battle that insurers will be fighting on both sides of the Tasman."

He said it was possible the options outlined for banks and insurers in the Conduct of Financial Institutions options paper could end up applied to other financial institutions that provided similar services.

“This paper is widely anticipated and represents a significant expansion in how New Zealand regulates conduct in the financial sector," he said.

"If implemented, the proposals would affect many industry stakeholders and, ultimately, nearly all consumers. I expect the paper to attract considerable public attention and debate and a wide variety of views to be expressed. In particular, options suggesting regulation of the structure of commissions or other incentives would significantly disrupt current business models in the industry. This is likely to elicit a strong response from some parts of the industry.”

Faafoi said he would seek Cabinet policy decisions on the regulation of financial institutions' conduct by September and planned to introduce conduct legislation by the end of the year.

Tags: insurance Kris Faafoi