Changes have been proposed to legislation that governs how insurers operate in New Zealand, which could potentially lead to "a proportionate approach to regulation and supervision".
These proposed changes could mean all New Zealand-incorporated insurers will have to be licensed as well as having a licensing regime for non-operating holding companies of insurers headquartered in New Zealand to enable "'group supervision' by the Reserve Bank".
It could also see the opposite for overseas reinsurers and 'captive' insurers, an insurance company created by a parent company for their own use, that only act as reinsurers as they may no longer have licensing requirements.
Alongside this, there's potential for a default solvency margin in IPSA (the central bank says this is how much extra solvency capital an insurer has above their required capital), and new powers for the Reserve Bank (RBNZ) to impose dividend restrictions on licensed insurers.
A review of the Insurance (Prudential Supervision) Act 2010 (IPSA) has been under way since 2016 - with the first stage of the review done in 2017. There was a pause between 2018 and 2020 due to the Covid-19 pandemic and staff focusing more on the RBNZ Act review.
The central bank launched its final omnibus consultation at the end of 2023. Since then, there's been progress - on its website, the RBNZ says: “In August 2025, Cabinet agreed to a set of recommendations to progress an amendment bill to make changes to IPSA.”
“We propose to publish an exposure draft of the IPSA amendment bill for public consultation in the first quarter of 2026.”
What exactly is IPSA?
Currently the RBNZ regulates and supervises the insurance sector through IPSA - focusing on prudential regulation. The Financial Markets Authority also regulates insurance in New Zealand - focusing on conduct supervision.
The Insurance Council of New Zealand - Te Kāhui Inihua o Aotearoa (ICNZ), a lobby group for general insurers in New Zealand, sums up prudential regulation as ensuring insurers can afford to pay claims.
The Act says it’s used “to promote the maintenance of a sound and efficient insurance sector” and “public confidence in the insurance sector”.
The Act also gives the RBNZ certain powers “to act in respect of insurers in financial distress or other difficulties”.
ICNZ says on its website: “One unique aspect of New Zealand’s prudential regulatory regime is that the Reserve Bank applies an extremely high catastrophe risk charge to New Zealand licensed insurers.”
“Most insurers globally have to hold sufficient capital reserves or reinsurance to cover their liabilities for a 1-in-200 or -250 year catastrophe event. New Zealand insurers have to hold sufficient capital reserves or reinsurance to cover their liabilities for a 1-in-1000 year catastrophe event.”
This means insurers can’t use their capital “as freely” in New Zealand compared to insurers overseas, the organisation says.
“This prevents domestic insurers from investing as much capital in the market, which can yield higher returns on investment and lower the cost of premiums charged.”
New Zealand’s insurance sector
In September, the RBNZ released documents - including Cabinet papers - on IPSA and the proposal to amend it.
One of the documents, the RBNZ’s regulatory impact statement, says before IPSA, New Zealand was one of the least regulated insurance markets in the world.
“The prudential regulation of insurance is necessary to ensure that insurers have sufficient funds to pay claims to insurance policyholders even in adverse circumstances,” the document says.
“Insurance policyholders pay for financial protection in advance, relying on insurers to have sufficient funds available when they need to make a claim.
“Insurers must accurately assess the risks they are covering, charge sufficient premium and invest the resulting assets prudently in order to meet claims.”
The insurance sector has changed since IPSA’s introduction - at the time of the Act’s introduction, there were 104 licensed insurers in the country.
As of June, there’s about 81 licensed insurers, with general insurance accounting for 60% of the market, followed by life and health insurance (both about 20% each).
Of these 81 insurers, 60 were considered ‘small’ insurers with Gross Written Premium (the total amount of money customers are required to pay for insurance coverage on policies issued by an insurer) below $200 million a year.
The document says there are 33 overseas insurers (incorporated overseas) and seven ‘captive’ insurers (insurers owned and used by large companies to access reinsurance markets serving only one policyholder, for example a power gentailer).
"Most large insurers that operate in New Zealand are domiciled in New Zealand with over 85% of all premiums being paid to New Zealand incorporated insurers. However, the majority are foreign controlled (that is, over 50% of the insurer is owned by overseas persons)."
The document says about 20% of insurance policies are written by branches of overseas insurers which means "the insurer is a legal entity incorporated in another jurisdiction but operating in New Zealand".
When it comes to insurance, general insurance is the largest sub-sector accounting for about 60% of the market followed by life and health insurance (20% each), the document says.
“The three insurance sub-sectors are dominated by a handful of insurers, with IAG and Suncorp dominating general insurance, and Southern Cross dominating health insurance.
“The insurance sector has features of an uncompetitive market.”
And when it comes to premiums, the regulatory impact statement says premium rates have increased “considerably” over the past two to three years “primarily due to higher inflation and a re-evaluation of risk”.
In the last three years:
- Dwelling and contents insurance premiums are up about 50%
- Health insurance premiums increased about 26%
- Vehicle insurance increased about 34%
- Life insurance increased 1%
The regulatory statement impact says with fewer large-scale claims since the Auckland flooding in 2021, it is expected growth in premiums should settle.
“This is consistent with broader international expectations … Recent claims in North America (Californian fires, January 2025) may actually place downward pressure in the New Zealand market as reinsurers rebalance their risk portfolios.”
So, what’s happening?
The RBNZ’s review found New Zealand’s insurance regulatory environment needs modernising and the insurance market and industry participants would benefit from closer alignment to international best practice.
In a paper Finance Minister Nicola Willis took to Cabinet, outlining proposals, she says: “I have been specifically cognisant of how these changes will improve competition within the financial system.”
In a nutshell, the Cabinet paper says the proposals are divided into these parts:
- Ensuring the purposes and principles reflect the primary aims of prudential regulation, considering consistency across legislative frameworks and Government priorities
- Adjusting the regulatory scope of IPSA
- Empowering the Reserve Bank to impose a broader set of prudential requirements on insurers, by way of ‘standards’ (a form of secondary legislation)
- Extending the current fit and proper regime that applies to directors and senior officers of insurers
- Simplifying the regulatory approvals regime in relation to transactions
- Additional supervision powers to better support the monitoring and assessment of the financial health of insurers and their compliance with prudential requirements
- More graduated enforcement powers depending on the type of breach of IPSA provisions by an insurer
- Refining the current distress management provisions
- Additional miscellaneous amendments to improve IPSA
"The proposals are intended to also align the insurance regulatory framework more closely with the regulatory framework for deposit takers and with international best practice," Willis says.
The proposals should also "support insurance regulation promoting the right balance between a sound and efficient insurance sector", Willis says.
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