FMA signals firm expectations on Contracts of Insurance Act implementation

For anyone treating the upcoming Contracts of Insurance Act (‘CoIA’) as a box ticking exercise, the FMA’s open letter to insurers last week is a clear warning.  The FMA expects insurers to be actively preparing for CoIA now, and has confirmed that implementation will form part of its ongoing monitoring and enforcement activities.

Melissa Bell, Craig Langstone and the rest of Fee Langstone’s regulatory team is working closely with insurer clients to interpret obligations, develop implementation plans, and update business processes.  This includes revising policy wordings to align with CoIA, and preparing for the extension of the unfair contract terms regime to non-consumer contracts.  In doing so, we are already seeing areas where CoIA requirements intersect with CoFI, particularly where the interpretation and application of CoIA is not clear cut. 

The FMA expects CoIA to be operationalised across the full lifecycle, from product design, sales, underwriting, policy administration and claims handling.  In our experience, applying a broader conduct lens to CoIA interpretation and implementation decisions helps ensure alignment not only with what insurers can do under CoIA, but with regulatory expectations about what insurers should do.  The FMA’s position also reinforces that this is not purely a legal or technical exercise.  Product design and target market requirements under CoFI are closely connected to CoIA decision making and implementation, and need to be considered together. 

Ongoing delays in finalising key regulations including the ‘safe harbour’ disclosure wording, is frustrating for insurer planning.  That disclosure wording is critical to enable compliance with the new duty to inform policyholders of disclosure obligations and the consequences of non-compliance.  These information obligations are market services licensee obligations under the Financial Markets Conduct Act and can give rise to civil liability for insurers if breached. 

However, the FMA’s has made its expectations clear:  “The regulations represent a small component of the reforms and consultation undertaken to date provides a sufficient basis for insurers to progress extensive implementation work.”

A link to the FMA’s letter can be found here:  FMA Letter to Insurers outlining expectations regarding Contracts of Insurance Act | Financial Markets Authority

melissa bell is a partner at fee langstone

craig langstone is a partner at fee langstone