7 June 2022

Focus on conduct and culture

Insurance companies in New Zealand are currently preparing for a change to their operating environment with the Impending Financial Markets (Conduct of Institutions) Amendment Bill (CoFi Bill).

This Bill represents a major upheaval to the way the New Zealand insurance market is regulated. It should be good news for consumers as insurance companies will now have an obligation to comply with a principle-based fair conduct regulation regime. As a result of this change, insurers will have to look more carefully at the products that they provide to insureds and also consider the associated pricing.

The Bill has passed its second reading and is anticipated to come into force in 2023. 

ESG responsibilities 

Environmental, Social and Governance (ESG) responsibilities are another side of the focus on conduct and culture.

These impact both insurers directly and their customers. The majority of the insurance companies operating in New Zealand are publicly listed companies and have significant ESG obligations. These are immediately impacting some of the business that they are willing to underwrite.

For example, some insurers have publicly stated that their commitment to ESG means that they will no longer consider accepting risks that involve thermal coal mining extraction projects or thermal coal electricity generation and are actively seeking to increase their exposure to businesses that have a positive environmental impact.

There are also other restrictions being placed on industry sectors such as weapons manufacturing and on tobacco or recreational cannabis products. We anticipate that insurers’ appetite for businesses that have a negative impact on either the climate, environment or social landscape will reduce over time. 

Climate-related legislation

In October the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill was granted Royal Assent, which makes New Zealand the first country in the world to make climate-risk disclosures mandatory for some financial sector organisations. Large financial institutions and certain equity and debt issuers listed on the NZX now need to disclose climate-related information about governance, risk management, strategy and metrics and targets.

For insurers of directors and officers risks it is now common practice to ask for more details on how boards manage risks relating to environmental, social and governance reporting and also how the business addresses Covid-19 and cyber risk. 

For more information please contact your broker.