Insurers would be forced to cover specific customers which could push up prices and make it harder to offer insurance if ‘Woke Banking’ Bill goes ahead, Insurance Council of New Zealand says

The ‘Woke Banking’ Bill could have “unintended consequences” for consumers, the Insurance Council of New Zealand says, as insurers would be forced to cover specific customers - making it harder to offer insurance, pushing up prices and reducing availability for everyone.

The Financial Markets (Conduct of Institutions) Amendment (Duty to Provide Financial Services) Amendment Bill was put forward by NZ First MP Andy Foster. It’s better known as the ‘Woke Banking’ Bill. 

Foster proposed the Bill after it was reported by The NZ Herald that BNZ had told a coal mining company it would close all of its accounts by 2030. The proposed law was drawn from the ballot in February.

The Bill would require financial institutions to offer services to all consumers unless there was a “valid and verifiable commercial reason” for not doing so.

In an explanatory note, the amendment is “intended to prevent registered banks ‘debanking’ or withdrawing banking services from New Zealanders, body corporates or companies, whose political view or outlook may not align with the sensibilities of that institution”.

This includes withdrawing or refusing services from business on “murky” environmental, social or governance “moralising”.

At a hearing of the Finance and Expenditure Committee on September 10, Foster said he and his party had heard from petrol station operators, sex workers and people trying to let property to those in the sex industry, and secondhand and lending companies about their experiences of struggling to access financial services.

Insurance

The Bill also focuses on insurers and non-deposit bank takers.

Foster said in terms of insurance, the Bill recognised that it was not sensible to provide insurance in some circumstances because the risk was too high.

“That is a perfectly valid financial reason for declining services so the Bill recognises that … This Bill says it’s not reasonable to decline financial services for purely non-financial reasons.”

The Insurance Council of New Zealand (ICNZ), an organisation representing the country’s general insurers, is strongly opposed to the Bill progressing.

ICNZ’s chief executive Kris Faafoi told the committee if the Bill was passed, it would “create uncertainty, complexity and additional costs that would make it harder to offer insurance to consumers and businesses”.

“Obliging insurers to provide insurance cover to specific customers may have unintended negative consequences for the insurers’ wider pool of customers on pricing and on insurance availability,” Faafoi said.

The Bill also presented challenges to insurers by placing potential restrictions on risk selection and underwriting processes, he said.

“Individual insurers have a range of legitimate reasons for insuring or not insuring a customer and these include [that] the risk may be outside an insurer’s business or expertise.”

For example he said some insurers specialised in certain types of insurance like motor and liability, and in some cases, specific risk could be outside an insurer’s risk appetite like a natural hazard risk at a specific location.

“An insurer may not currently offer cover to certain industries for a range of commercial reasons. And this can include industries or customers that the insurer considers represent excessive risk.”

Faafoi said it wasn’t clear how some of the decisions would be assessed under the Bill.

“Restricting insurers’ ability to decline an application for insurance or determine the terms on which they offer insurance could force insurers to take on risks which they might not otherwise take. This carries the risk of unintended consequences for all [of] an insurer’s customers.”

Faafoi said: “Other customers may suffer unintended consequences on pricing and insurance and reinsurance availability.”

ICNZ was also concerned the Bill would increase the possibility that a regulator may seek to challenge an insurer’s underwriting decisions, he said.

“This could result in litigation and additional compliance and record keeping burdens on insurers, and this would likely be passed onto consumers."

Faafoi said the ICNZ considered that the Bill was not required and "would create a new and unnecessary compliance burden with no benefit to New Zealand consumers".

When asked what the likely unintended consequences would be for customers and the industry if this legislation went forward, Faafoi said: “Insurers would be required within their own internal processes to make sure that it can argue the case around the validity of a commercial decision”.

“I mean, we’re talking about assessing risk. This is the bread and butter of our members.

“They make commercial decisions every day - some of those decisions might be unpopular with the people seeking that insurance and if they were able to challenge that and our members were forced to defend that, then there are processes and costs that would be involved if there were to be a legal process or a regulatory process.”

Faafoi said people were already finding cost of living challenges difficult and insurance was among that.

“We are concerned about what impact that would have on prices for consumers.”

What some others have said

At a hearing on September 15, Federated Farmers of New Zealand board member Mark Hooper said it supported the intent of the Bill as it addressed growing concerns from its rural members “particularly about banks overstepping into ideological judgements that threaten access to future financial services and more importantly, access to new capital flow”.

“The Bill is timely in the sense of needing to restore balance between commercial discretion and democratic oversight - or in other words, ensuring that lawful responsible businesses in rural New Zealand cannot be denied services on arbitrarily or on ideological grounds.”

Hooper said New Zealand’s economy, particularly in rural areas, relied on broad access to financial services and the flow of future investment capital.

“With limited banking alternatives, good access to our major banks is essential for economic performance and community viability.”

Hooper said members were increasingly concerned that banks could potentially withdraw services from lawful businesses - not based on credit risk or commercial concerns but “on subjective reputational criteria driven by offshore frameworks such as the Net Zero Banking Alliance”.

At a hearing on September 10, New Zealand Banking Association CEO Roger Beaumont told the committee the Bill “ignores the fact that banks make credit decisions on commercial reasons, not on the basis of murky moralising”.

“The reality is that no industry or customer group is being debanked as part of some murky conspiracy. Some individual banks have made individual, commercial decisions to not lend to a business. But banks have not done this as a collective.”

Beaumont said this was not the first time authorities had looked into these issues with the Commerce Commission doing a previous investigation.

“The Commerce Commission has investigated and found that there is no cozy cartel of banks operating under the Net Zero Banking Alliance, despite accusations to the contrary.”

Parliamentary Commissioner for the Environment Simon Upton said “environmental risks are just that. They are risks, not moralizing”.

“Environmental risks entail valid reasons for lenders to decline to lend.”

Speaking on September 15, Westpac New Zealand chief executive Catherine McGrath shared a submission, saying it should be considered alongside the New Zealand Banking Association’s submission.

McGrath said while it understood the intent of the Bill, “where we differ from the Bill is the characterisation of ESG (environmental, social and governance) assessments as moralising, when in reality these assessments are part of prudent risk management and commercial decision making on a case-by-case basis”.

During the question and answer session for McGrath, Finance and Expenditure Committee member New Zealand First MP David Wilson asked about the ESG approach and how judgements being made now could be cutting off futures where, for example, petrol stations could potentially be selling hydrogen. Wilson also brought up gold mining.

McGrath said Westpac New Zealand continues to bank petrol stations and has been taking on new petrol stations.

“You need to look at them all on a case-by-case basis,” McGrath said.

“An easy example is if I’m looking at a petrol station in central Auckland where circa 50% of all new cars are e-vehicles.

“We’d want to have a conversation with that petrol station to say, ‘if you look at your lending in the future and your ability to meet those repayments, what plan have you got in place to ensure that as your petrol sales go down, that you’ve got other forms of cash flow that are going to come up’ - whether that’s hydrogen or using the forecourt for a different purpose.”

McGrath said if the bank was looking at a petrol station in another part of the country where the adoption of e-vehicles is further off, “then there’s a potentially different transition risk that we need to look at with them”.

“And so our view is that the ESG assessments are a really important part of understanding future looking risks.”

McGrath said: “Our job as a bank is to work with our customers to say ‘what’s the best way that you can make sure your business is resilient in the future?’”

“And we take the same approach whether it’s a petrol station, whether it’s a gold mine or whether it’s another type of business where there are some future cash flow challenges that we need to work with our customers to help make sure that they’ve thought them through so they end up profitable for generations to come.”