As the Government moves to exempt health and life insurers from climate-related disclosure regime, MBIE analysis says there’s an ‘absence of evidence that current reporting costs are disproportionate to the benefits of disclosure’

Ministry of Business, Innovation and Employment (MBIE) officials recommended against exempting health and life insurers from mandatory climate reporting, saying further reducing the number of reporting entities risks “weakening the overall integrity and effectiveness” of the Climate-related Disclosures Regime (CRD).

Instead, the officials preferred the status quo - having health and life insurers continuing to report into the CRD, according to documents released by MBIE. Climate reporting entities were legally required to start reporting from January 2023.

Commerce and Consumer Affairs Minister Cameron Brewer first announced that nine health and life insurers would be removed from the CRD in June, saying: “Unlike general insurers, health and life insurers aren't directly exposed to climate risks like extreme weather events, so there's little value in making them report on it.”

“They've told us they don't belong in the climate reporting regime, as ultimately it adds cost to their clients,” Brewer said at the time.

"This is a commonsense fix. It's about making sure the right businesses are reporting, not tying up firms in paperwork that does nothing for anyone.”

The current government has made other changes to the CRD including raising the climate reporting threshold to $1 billion in market capitalisation for share market listed entities, and removing managed investment schemes.

However, in a Regulatory Impact Statement document, MBIE officials said health and life insurers were a core part of New Zealand’s financial markets and the CRD regime was not meant to just apply to entities with “direct or material exposure to climate-related physical risks”.

“Their business models involve long-term risk pricing, capital allocation, and investment decisions, all of which are relevant to how climate-related risks and opportunities are assessed and managed within the financial system,” officials said.

“Requiring these insurers to consider and disclose climate-related matters supports forward-looking risk management and contributes to the system-wide transparency that underpins the CRD regime’s objectives.”

“Entities are included because of their role as large financial market participants that influence capital flows and long-term financial outcomes,” MBIE’s Regulatory Impact Statement document said.

“Adjusting scope on the basis that a particular sub-group has more limited direct climate exposure would therefore depart from the regime’s foundational design and risk reframing its purpose in a way not previously applied to other reporting entities.”

Potential to ‘erode confidence in the regime as a whole’

The officials said their preference to keep health and life insurers within the CRD regime reflected; “the absence of evidence that current reporting costs are disproportionate to the benefits of disclosure and the risks of further scope reductions at an early stage of implementation.”

“Further reducing the number of climate -reporting entities risks weakening the overall integrity and effectiveness of the CRD regime, which relies on maintaining a sufficient volume of disclosures to support comparability, market confidence, and robust assessment of climate-related risks and opportunities,” officials said in the Regulatory Impact Statement document."

“Given the uncertainties about the impact of the upcoming changes - particularly the reduction in the number of listed issuers reporting and the removal of MIS (managed investment scheme) managers - and no firm evidence to say whether or not the regime is achieving its objectives, it is difficult to quantify this impact.”

Officials said there was a risk that additional reductions in who was part of the CRD; “could erode confidence in the regime as a whole and limit its ability to achieve its intended system-level objectives.”

MBIE estimates the cost-savings for the nine exempt health and life insurers would range from $261,500 to $600,000 per insurer.

“While there may be some compliance relief for the entities excluded, we do not think there is evidence that the costs of compliance outweigh the intended benefits of the regime, whilst also acknowledging the regime has not been in place long enough to have evidence that it’s meeting its objectives.”

“The CRD framework relies on maintaining a broad reporting base to support comparability, market confidence, and system‑wide assessment of climate‑related risks,” officials said in the Regulatory Impact Statement document.

Officials said its analysis concluded that the benefits of Brewer’s preferred option of removing health and life insurers did not outweigh the associated costs.

The officials said their preferred option; “aligns with the CRD regime’s objectives and delivers the highest net benefits under conditions of uncertainty, by avoiding premature and potentially irreversible scope changes in the absence of clear evidence that exclusion is warranted.”