The Reserve Bank of New Zealand has launched consultation on whether current legislation provides insurance policyholders with the protection they expect.

The consultation is part of a wider review of the Insurance (Prudential Supervision) Act (IPSA) 2010, the central bank, which also regulates the insurance industry, said.

It looks at the parts of the Act that are focused on policyholder security, that is, reducing the likelihood that an insurer might become unable to make claims payments that they owe to policyholders.

“We also ask whether New Zealand should consider establishing a guarantee fund for some of policyholders’ claims if an insurer fails,” Deputy Governor and GM of Financial Stability Geoff Bascand said.

The consultation also will examine the type and breadth of information insurers publish so customers and other interested parties can assess the financial stability of insurers before purchasing a policy.

“The consultation also reviews the legislation governing the amount of capital insurers maintain as a buffer in case of adverse events - otherwise known as their ‘solvency capital’ - and asks whether there should be greater clarity about policyholders’ rights when some policies are terminated early,” Mr Bascand said.

Closing date for submissions is November 15.

Click here for the submission form and here for more information.