Long wait for reforms to life insurance law

Government moves to reform the 1908 Life Insurance Act will not come into fruition until at least 2008, frustrating the industry.

Vance Arkinstall, chief executive of the Investment Savings and Insurance Association whose members include Tower, AMP Financial Services and AXA New Zealand, said the act was out of date and inappropriate for an industry that managed $8 billion in funds.

The Government has decided to incorporate the life insurance review into its omnibus non-bank finance sector review after a Law Commission report.

Any changes will not take effect until 2008.

Arkinstall joked that by 2008 the Life Insurance Act would be 100 years old and in line for a telegram from the Queen.

In its response to the commission's report, the Government said it would repeal the 1908 act as part of the establishment of a new, updated regulatory regime for financial products including insurance.

The Government would also consider a commission recommendation that all life insurers offering policies in New Zealand be forced to incorporate here as companies.

This would make them subject to the 1993 Companies Act provisions on director's duties, prohibitions on who can act as a director, amalgamations, liquidation and potentially voluntary liquidation.

Arkinstall said there were some concerns over the possibility of an overseas insurer operating here, "clawing back" New Zealand policy-holders' money to its home country in the event of an overseas financial problem.

"There's no evidence that it's happening or that it's likely to happen, but nonetheless we would like to see some added security for New Zealand policy-holders and incorporation might be one way of doing it," Arkinstall said.

Such a move would mirror the Reserve Bank's insistence that Westpac, which has operated here as a branch of its Australian parent for 143 years, incorporate.

After years of haggling, Westpac agreed to do so in December and says the cost will not be "material".