Opinion
INSURANCE HAS A CRITICAL ROLE IN THE CRISIS AHEAD Insurers have opportunity to show support for New Zealand in Covid-19 recovery process. By Tim Grafton, Insurance Council chief executive
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avigating the turbulence of a global economic crisis requires insurers to maintain an even ballast between the cargo of customer interests and buoyant solvency. In New Zealand, rated one of the riskiest for its size, the challenge is arguably more difficult. Treasury’s scenarios are bleak.The most optimistic sees unemployment rising to 10% and under the bleakest scenario to 26%. Major contractions in GDP and business failures are part of the mix. Much depends on the global economy, additional Government fiscal support and the duration of Covid-19 restrictions. Insurers are supporting their customers with a range of measures to maintain protection for them while cushioning the financial impact for those in hardship by adjusting terms to reduce costs and payment arrangements. ICNZ has also developed links with those who work with the most vulnerable in the community to ensure a dedicated 30
June 2020
person with each insurer is there to respond to hardship issues. Insurers must also have an eye to their own finances. Regulators require insurers to maintain higher levels of solvency than other companies, so they can be there to meet commitments to all policyholders, especially when natural catastrophes occur as they have done in recent years. But insurers, like everyone else, face a drop in income as interest rates and assets values fall. Looming business closures and general economic downturn will also impact future premium income. With that in mind, insurers will prudently stress-test their solvency positions against the bleakest scenarios, mindful that regulators will want them to preserve their capital positions and if possible, to build them. For that reason, in many countries, dividend distributions have been strongly discouraged by the regulator. Regulators want to see healthy buffers above minimum levels of solvency to ride through the extreme economic uncertainty and to
