Regulatory changes impacting insurers

A spotlight on three pieces of legislation of particular relevance to the insurance sector.

A spotlight on three pieces of legislation of particular relevance to the insurance sector

5 min read

The regulatory environment in insurance continues to evolve, and there are three pieces of legislation set out below which are particularly relevant at this time.

There is a common thread connecting these regulations, which have the interests of consumers and expectations of good conduct at the forefront of change.

Conduct of Financial Institutions (CoFI)

Insurance Contracts Law

Natural Hazards Insurance Act

Ready for: Conduct of Financial Institutions (CoFI) – Conduct

CoFI is no longer just ‘on the horizon’. The licensing window has been open since July 2023, and the legislation goes live on 31 March 2025. By this date, applicable financial institutions will need to be licenced and have a Fair Conduct Programme (FCP) in place.

CoFI is ultimately focused on fair outcomes for customers and requires institutions to develop their own definition of ‘fair’. We have observed there has been a shift in mindset across the insurance industry from this being a compliance tick box exercise, to an empowering opportunity to align fair treatment to an organisation’s vision and values.

Depending on the size and nature of the business, FCPs will differ in detail and complexity, and consist of several key artefacts not just one written policy. We have observed across the market that while individual business units may have already had elements of ‘fair conduct’ implemented and operating, in most cases they weren’t specifically called out or documented, they weren’t joined up across the organisation, or they needed refreshing. A critical requirement is that FCPs are approved and overseen by the insurer’s governing body, so these are all critical requirements to get right. Helpfully, the FMA recently produced guidance for smaller firms to help them produce an FCP that is fit for purpose. This additional guidance has made it clearer what smaller insurers must do to meet the CoFI requirements,

Whilst not a disclosure requirement, institutions will have a duty to make certain details of their FCP publicly available (in an easily understood and accessible format) for their customers. This means that FCPs will need to be maintained and updated on an ongoing basis.

In development: Insurance Contracts Law

The proposed Contracts of Insurance Bill aims to modernise and consolidate existing legislation which includes the Life Insurance Act 1908, and the Insurance Law Reform Acts of 1977 and 1985. The proposed legislation aims to provide increased consumer protection and fair contracts, with an emphasis on clear, plain English policy wording. The move follows similar legislative changes to contract law in Australia and the UK. Consultation was held in 2022 but there was a long pause until the Bill, including changes following feedback, was introduced to Parliament earlier this year.

The Select Committee has recently completed its review and recommended that the Bill be passed with some amendments – for example, more clarity around the ‘reasonable duty of care’ and ‘fair representation of risk’ in consumer contracts. This includes replacing the term ‘fraudulent’ with ‘dishonest’ as the threshold for misrepresentation. When agreeing to remove a specified timeframe for insurers to pay claims, it was agreed that the implied term of ‘reasonable time’ to pay and resolve claims should be extended to include time taken for information gathering to assess a claim.

Media picked up on the Select Committee’s commentary around the subject of genetic discrimination, a new area not addressed by current legislation but specifically considered for this Bill. It follows lobbying and concerns that some insurers are, or could, discriminate against people using genetic testing when underwriting life or health policies. The proposed legislation does not specifically ban genetic discrimination, but it does provide the opportunity to regulate conduct in respect of genetic testing. This could potentially impact life and health insurance underwriters in the future.

We are keeping a close eye on developments as the Bill progresses through the legislative process. The timing is yet to be confirmed and there is likely to be a transition period of at least 12 months. Implementation timelines will require stakeholder feedback to gauge impact, effort, and time required to comply with new obligations. This type of delivery will require resourcing across the board including Underwriting, Products, Training, Sales, IT and Marketing. Good change management, governance and risk and compliance oversight will be critical to mapping out a successful path to compliance.

Now live: Natural Hazards Insurance Act

The Natural Hazards Insurance Act 2023 took effect on 1 July 2024, replacing the Earthquake Commission Act of 1993. The Earthquake Commission Crown Entity has been rebranded to become the Natural Hazards Commission | Toka Tū Ake (NHC). The re-naming of the Commission reflects that it’s not just limited to earthquake cover, which was a common misconception.

Highlights of the new legislation include:

Excess provisions are simplified.
Household services are more clearly defined.
Increased cover for mixed-use buildings such as apartments or commercial buildings.
Provisions for certain land cover in the event of storm and flood damage, sums insured limits and calculations for certain items.
Streamlining of assessment processes using insurers to avoid the complexity, duplication, miscommunication, and delays.
A Code of Insured Person’s Rights – secondary legislation, a new regulation that sets out the NHC’s obligations.
External Disputes Resolution Scheme.

The new Natural Hazards Portal was launched last year. We have heard from our clients that they have specialist claims team dedicated to natural hazard events, supporting customers, assessing damage, providing oversight and management of claims, whilst working closely with the NHC.