Life Insurance Companies Act 1873
There has only been very light government regulation directed specifically at the New Zealand general insurance sector. Under the Life Insurance Companies Act 1873 life insurance companies were required to pay the government a deposit of between £5,000 and £10,000 (about $600,000 and $1.2 million in 2009 terms) before they could operate in New Zealand, to prove that they had the necessary funds to pay out on claims. From 1894 overseas accident insurance companies also had to pay this sum. As well, life insurance companies had to declare each year to the government how much money they held in reserve and how much they owed on their policies.
Finding the frauds
Fraudulent claims have always been a serious problem for the insurance industry. Many fires were deliberately lit to claim the insurance payout. In 1993 State Insurance established its own investigation unit, eventually staffed by 21 ex-police officers. The unit saved the company more than $5 million each year in false claims. It also contributed towards setting up the Insurance Claims Register, a computer database which matched new claims to earlier ones by the same claimant and greatly helped to identify fraud.
Regulating general insurance companies
Fire and general insurance companies were required to have their financial position reviewed annually by the Public Trustee. In 1922 overseas fire and general companies were also required to pay a deposit, and in 1940 New Zealand-based companies had to do the same. The amount of the deposit was not significantly increased until 1974 when it was raised to $500,000. Later the Insurance Companies (Ratings and Investigations) Act 1994 required general insurance companies trading in New Zealand to establish that they were financially stable and to provide this information to potential policy-holders.
Until 1889 fire and marine insurers were not allowed to trade with limited liability. Before then the shareholders were liable for all of their company’s debts. The local fire and marine companies had to have capital of at least £50,000.
Coordinating the life insurance industry
Life insurance business has been more tightly regulated than general insurance. This is because life insurance companies hold many policies, such as endowments and whole-of-life policies, that pay out long into the future, so the long-term sustainability of the company is especially important. To coordinate and represent the life insurance industry, a branch of the Australian Life Offices’ Association was set up in New Zealand in 1918 and became a separate organisation in 1972. It later merged with the Investment Funds Association to form the Investment Savings and Insurance Association of New Zealand in 1997.