The Insurance Council of Australia (ICA) and insurer IAG have called on the Australian and New Zealand governments to harmonise insurance regulation between the two countries.

They say different catastrophe risk standards create an unnecessary cost and regulatory burden for insurers operating across both countries.

Australian-owned insurers dominate the New Zealand market, with IAG owning the largest New Zealand insurance operation.

ICA and IAG made submissions to a joint study by the two countries’ productivity commissions into economic relations between the two countries.

“The decision by the Reserve Bank of New Zealand (RBNZ) to increase the catastrophe risk capital charge for non-life insurance to at least a one in 1000 years loss return period, compared to [the Australian Prudential Regulation Authority’s] one in 250 years requirement, has created a material difference between the Australian and New Zealand regulatory environments,” ICA CEO Rob Whelan says in the council’s submission.

He says the inconsistency imposes a significant regulatory burden and cost and the New Zealand standard “reflects an unnecessarily conservative prudential regime”.

ICA GM Regulatory Policy John Anning told insuranceNEWS.com.au the RBNZ decided to change its standard after careful consideration and reserves the right to alter the policy if necessary.

“What we’d like them to do is keep the lines of communication open and monitor the implications of the charge and how insurers are faring in implementing it,” he said.

“In taking the decision they not only looked at the risk of earthquakes but also the implications for the industry and for reinsurance. We ask them to keep an open mind as those factors become clearer.”

He says that although the cost of the changes is not yet known, insurers will need to buy more reinsurance at a time when prices are increasing.

IAG’s submission also calls for catastrophe risk regulations to be harmonised.

Spokesman Andrew Tubb told insuranceNEWS.com.au the group will comply with the new standards in New Zealand, but the inconsistencies are “not ideal”.

He declined to say which country should change its regulations to harmonise the two.

Trans-Tasman Business Circle CEO John Weiss says he agrees. “It’s important that we harmonise as much as we can between both countries and reduce the costs of regulation.”