Insurance (Prudential Supervision) Amendment Bill, Reserve Bank of New Zealand Amendment Bill

on behalf of the Minister of Finance: I move, That the Insurance (Prudential Supervision) Amendment Bill and the Reserve Bank of New Zealand Amendment Bill be now read a third time. This is legislation that, essentially, looks at the prudential arrangements for insurers in New Zealand. The Insurance (Prudential Supervision) Act of 2010 established a licensing and prudential supervision regime for insurers carrying on insurance business in New Zealand. It replaced existing outdated and disjointed insurance legislation, and aligned New Zealand with international regulatory benchmarks and expectations. This bill represents a significant step forward in terms of delivering comprehensive prudential regulation of insurers carrying on that business in New Zealand. Although the 2010 Act has proven to be generally effective and robust, it is not unexpected that some of the provisions that have been identified as appropriate for reform are considered in this bill.

The Insurance (Prudential Supervision) Amendment Bill and Reserve Bank of New Zealand Amendment Bill contain a small number of amendments to the 2010 Act and one consequential amendment to the Reserve Bank of New Zealand Act 1989. The amendments were identified by the Reserve Bank when reviewing the operation of the Act during the transition period towards full licensing, which expires at the end of September 2013. That is a short time away, and one of the reasons why we need to get the bills through for Royal assent as quickly as possible. The bills aim to reduce or eliminate unnecessary compliance costs and address technical issues identified during the provisional licensing to ensure a smooth transition to full licensing of insurers. This review has been a useful post-implementation exercise, and the Reserve Bank aims to complete a wider policy review in 5 years. The bills allow for a provisional licence to remain in force at the discretion of the Reserve Bank if particular circumstances apply to an insurer. The provisional licence may remain in force until the Reserve Bank is satisfied that it should be cancelled.

The bills also allow for overseas insurers to be permitted on application to, and approval by, the Reserve Bank to provide half-yearly financial reporting based on the home country regulatory reporting requirements. These are important matters, as New Zealand, I am sure, would benefit from more insurers in our local market to augment the large players that currently have such big chunks of our market.

Two other proposals are expected to reduce or eliminate unnecessary compliance costs. The first of these allows the Reserve Bank to accept an insurer that is running off its liabilities from the requirement to have a current financial strength rating. I think you would find that Southern Response in Canterbury fits into that category. The second clarifies that in respect of contracts of insurance that renew more frequently than annually, disclosure in writing on the insurer’s financial strength rating to the policy holder may be made on at least an annual basis rather than at every renewal.

The amendment bill also takes the opportunity to address technical issues—for example, providing a limitation period of 5 years within which the Reserve Bank may file a charging document against an insurer that has committed an offence, to ensure consistency across both bills. The amendment bill also empowers the Reserve Bank to publish and maintain on its website an official register of licensed insurers, with additional content to be determined by regulators. This will result in consequential amendments to the Reserve Bank of New Zealand Act 1989. I commend the bills for their third readings.

The Labour Party supports the Insurance (Prudential Supervision) Amendment Bill and the Reserve Bank of New Zealand Amendment Bill. The Minister who has just resumed his seat, Mr Brownlee, is quite right in saying that the Finance and Expenditure Committee thought it was important that provisional licences can be kept for a longer period of time than was originally envisaged, the reason being that if a company gains a provisional licence but cannot convert it into a long-term non-provisional licence because, for example, of insolvency, then it is desirable that there still be a level of oversight by the Reserve Bank that can occur under a provisional licence that could not occur if the insurer was unlicensed. So this helps the Reserve Bank and the Government, through the Reserve Bank, to maintain oversight of insurers in that situation.

There is an important outstanding issue in respect of the prudential supervision of insurance companies that is not touched upon by this legislation, and it is a difficult issue for New Zealand to grapple with. Before I sit down I want to just mention the complexities around that issue, and that is whether the prudential standard upon which insurance companies are judged is their ability to meet either a one-in-500-year event or a one-in-1,000-year event. Of course, if the requirement is for them to have a strong enough capital position to meet a one-in-1,000-year event, it effectively means that they have to have a stronger balance sheet. At first blush you can understand why the Reserve Bank might want companies to have a stronger balance sheet in order to meet a one-in-1,000-year event. My understanding is that the Alpine Fault ruptures approximately every 800 years and that would probably be the biggest insurance event that it is possible to contemplate in New Zealand. That is one of the reasons why the Reserve Bank is looking at the—

💬 Hon Trevor Mallard: What about the Wellington one?

Well, the Wellington one would probably go out in sympathy. You know what Wellington is like! The consequences of that would be dire for New Zealand, but that is a different question. Whether we should move the prudential requirement to a one-in-1,000-year event rather than a one-in-500-year event is not the only part of this question, because there are some consequences of that. This has been passed on to me by a number of participants in the insurance industry, and I do not believe that they are talking from a position of self-interest. Indeed, I think that they have New Zealand’s interests at heart in respect of this issue, because they can live with either eventuality.

The first consequence is that if there is higher capital requirement for an insurer, it may be that that capital is not available to them. The multinationals that are present in New Zealand compete for capital amongst different parts of the world, so it may well be that they just cannot get the additional capital to put into their New Zealand operation and their parent company chooses, on balance, given our risks in respect of earthquakes and the like, to withdraw from the New Zealand market, rather than bring forward that additional capital to their New Zealand subsidiary. That would mean that we have less competition in insurance in New Zealand and we become more reliant on the remaining insurers, which in itself increases risk in the event of a very big earthquake.

The second issue is that even if they could get that additional capital in New Zealand to meet a higher prudential ratio to cover a one-in-1,000-year event rather than a one-in-500-year event, the cost of that increased capital would be passed on to the people who buy insurance or buy premiums from those companies. In other words, people’s insurance bills would go up. If people’s insurance bills go up, then some of those people who would otherwise have taken insurance will not take insurance or will take lower levels of cover. So, in terms of the effect on New Zealand’s insurance cover, it could be—I am not saying it would be, but this requires careful analysis—that increasing the capital requirements could actually result in lower levels of insurance in New Zealand. So it could be counter-productive if what we are trying to do is minimise the risk of consequences in New Zealand if there is a really bad earthquake. If we have fewer people insured against different sorts of risk—and it is not just their household cover or their contents cover but things like business interruption insurance; all those other sorts of cover would be affected by these same capital ratios—and we have insurance costs going up, then we could actually have the opposite outcome from that which we intend, even though the Reserve Bank might be thinking that it is improving, from its perspective, the financial stability of the insurance companies. Overall, New Zealand might be worse off because we have lower levels of insurance.

The third area where this is relevant concerns the effect on competition with the multinationals. Over the last two or three decades we have seen a concentration of ownership by overseas multinationals of New Zealand’s insurance market. This is also something that has happened in other parts of the financial services sector, like the banking industry. As a consequence of, amongst other things, monetary policy settings and tax settings, New Zealand has been hollowed out when it comes to ownership of our financial services sector. The ability of small New Zealand companies to start up and grow into companies that compete with these overseas companies—who, of course, repatriate profits, as any insurance company would do in that situation—could be inhibited by increasing stringency of capital requirements that make it harder for new entrants to enter into the market and compete.

None of those issues are dealt with in this legislation arising from the Insurance (Prudential Supervision) Amendment Bill, but they are coming at us in respect of an issue as a consequence of the Reserve Bank saying that it is considering whether to increase the prudential requirements from 500 to 1,000 years. I, for one, will take some convincing that the issues I have raised are not more important. The Labour Party supports this legislation.

It is my pleasure to speak on the third reading of the legislation arising from the Insurance (Prudential Supervision) Amendment Bill. National is firmly focused on responsibly managing the Government’s finances and building a more competitive and productive economy, and the insurance sector is a very significant part of the economy—a significant cost for households, businesses, and Government as a whole, and those costs have increased significantly in New Zealand as a result of the earthquakes. We cannot do much about that but we can ensure that Government regulation effectively balances the need for supervision of this industry so as to protect policyholders and the community as a whole, and the need to do that in a way that does not add unnecessary costs on to the industry. I think that the Insurance (Prudential Supervision) Act of 2010 did a generally effective and robust job in balancing those requirements, but it is not unexpected that some provisions have been identified as appropriate for reform—and indeed that is what the point of this legislation is—and I am glad to see that we have widespread support across the House for this legislation. It does not involve significant changes to the existing policy and it is expected to continue to benefit from industry support.

Certain provisions—can I just trespass on the House’s time for a moment—have been identified as being too onerous in the circumstances where policyholders are not expected to gain material benefits or additional protection, even if the insurer complies with their requirements. Those elements have been identified, and this legislation will allow the Reserve Bank to exempt an insurer that is running off its liabilities from the requirement to have a current financial strength rating.

Often there will be limited public benefit for an insurer to hold a financial strength rating where it is required to cease to enter into new contracts of insurance, and for contracts of insurance that renew more frequently than annually, disclosure in writing of the insurer’s financial strength rating to the policyholder should be made on at least an annual basis rather than on every renewal.

Those are the sorts of things that this legislation has been working on and it is all about making sure that the insurance industry, which is so important to the health and competitiveness of New Zealand’s economy, is maintaining its strength. On that basis, I commend this legislation to the House. Thank you.

I do not intend—as National is—filibustering this legislation arising from the Insurance (Prudential Supervision) Amendment Bill. Labour members intend to facilitate its passage rapidly because we do support it. It does make a number of technical changes, which we support, to the prudential and regulatory framework governing the insurance sector.

I just want to simply touch on two points. First, I want to reinforce what Mr Parker said in respect of outstanding business in terms of the Reserve Bank contemplating increasing the prudential requirements on the insurance sector from 500 to 1,000 years. Mr Parker made a good point: if that translates to increased cost and increased premium, then despite the Canterbury earthquake you could have a bizarre situation where, yes, prudentially the insurance companies’ requirements are increased, however it is too tough for people to get insurance or the appropriate level of insurance, and pending—God forbid—we have another disaster like Christchurch, we are in a situation of underinsurance.

The final thing I want to say is this. Though we support this legislation, as a Canterbury MP I just want to say this to the insurance industry. It is appropriate that we are protected and ensure that that sector has an appropriate regulatory framework. But I bring this message to that insurance sector from the people of Christchurch and other places. There is an expectation when Kiwis who have paid insurance premiums all our lives collectively—and none of us, until the Canterbury earthquakes, really thought that we would ever make a call on that insurance, unless Johnny throws the cricket ball through the window, as it were, or in a minor way—and there is a great almost loathing, to some extent, of that sector and the inability of that sector to pay out appropriately and swiftly and to a high degree of frequency.

I accept that the Canterbury earthquakes are an extremely complicated matter. There are a number of strands that have to be resolved, but Mr and Mrs Cantabrian sitting in their munted house 3 years after the event—having paid insurance premiums all their lives, having the insurer ring them up if they are a day late or a week short, or whatever, and making damn sure that they pay—expect that insurance companies will pay up in the appropriate time. In the policies of most people, if not all people, they say words to the effect that insurers should settle in a reasonable period of time.

I note that the Prime Minister of Australia, when he was first Prime Minister and they had the Queensland floods, came over to Christchurch—in fact, Labour members met with him. We asked him whether he was having the same difficulty with insurers that we were having in terms of getting them to write cheques so people could get on with their lives. He said, in effect, yes. We asked him what he did about it and he basically said that he called the insurers into his office, read the Riot Act, and threatened to regulate them if they did not start paying out. They reached, as I understand it, some sort of voluntary time frame—

💬 John Hayes: Is this a filibuster when you don’t filibuster?

—I know that this does not affect Mr Hayes—and 12 months later you had new houses being built further up the hill in Queensland outside the flood-prone areas.

We, today, have people longing to get on with their lives. Charitable organisations in Christchurch, which cannot move along, are now having to spend many of the charitable dollars they ordinarily would not on overheads like rent on buildings because the insurance company, week after week, and year after year, and engineering report after engineering report, will not settle—and likewise with individual Cantabrians and others.

I just conclude by saying that it is noteworthy that this legislation looks to protect and enhance the regulatory and prudential framework of the insurance sector. But I say to the insurance sector that many in this Parliament and many New Zealanders around the country demand that they do their bit and that when the chips are down, and people have paid and they need their lives put back together, insurance companies pay out and pay out swiftly.

Tēnā koe. I rise to speak on the third and last reading of the legislation arising from the Insurance (Prudential Supervision) Amendment Bill. The Green Party has not supported these changes and it will not be supporting this amending legislation, so I will take just a few minutes to explain why.

The Insurance (Prudential Supervision) Amendment Bill makes nine technical changes to the principal legislation, which is the Insurance (Prudential Supervision) Act 2010. That Act established a licensing and prudential supervision regime for insurers operating in New Zealand, and the Green Party wholeheartedly supported that Act. There are technical changes proposed in this legislation—I can completely understand the reasons for some of them, but for others we had questions that were not adequately answered during the select committee process. Therefore, we decided that although we can understand that there is some need to ensure that during the transition period there is a smooth transition from provisional licences and there was a need for this particular amending legislation in order to extend the provisional licensing period, we thought it was important to object to the changes on principle. In the wake of the global financial crisis and with the increasing severity and frequency of extreme weather events it is quite clear that all financial services, but particularly insurance, need to be moving in the direction of greater regulation and Government oversight rather than less.

Although we hear a lot of rhetoric from this Government about cutting red tape and making things easier for businesses, the fact is that we are not talking about New Zealand businesses. A lot of the particular changes in this legislation—one of which is allowing overseas insurers to use accounting rules that apply in their home country for interim financial reporting rather than adhering to New Zealand accounting practices—are not benefiting New Zealand business, and they are not benefiting the New Zealand economy particularly either. We have seen a rationalisation of insurance providers in New Zealand to a few big overseas-owned players, and ultimately the Green Party is very concerned about the risk that this poses to New Zealand.

I understand that with the increased number of severe weather events around the world and problems like earthquakes here in New Zealand, the insurance industry has been under some strain, and we lost one of our own larger New Zealand - owned insurers, AMI, because it was not in as good financial health as it should have been. The problem is that if we do not have strict regulatory oversight then there is an incentive for organisations to cut corners and to cook the books a little bit in order to compete with other larger organisations that also do not have to comply with a strict regulatory regime.

In other words, if the Government is not there to set the rules of the game and to enforce those rules and make sure that organisations are doing what they are supposed to be doing, then there is necessarily a race to the bottom because competitive pressures will result in organisations cutting corners and stretching the truth. We have seen so much of that in the past few years, not just in the insurance industry but in the financial sector. There were how many dozen? I think it was something like 70 finance companies that went under.

This is not a case for less regulation. What this has demonstrated to us is that these sorts of sectors, financial services sectors, actually need more strict Government oversight. I do not understand how these particular changes are going to facilitate and make it easier for New Zealand companies to start up and provide insurance here in New Zealand and provide greater choice to people in the market.

In the past few years, even with the large number of payouts and disastrous events that insurance companies have had to pay for, we have actually seen record profits. Insurance companies have been making record profits.

💬 John Hayes: Good. They pay record tax.

Well, yeah. The question is, why should we be reducing compliance costs, which are actually a necessary part of regulatory oversight, at a time when it is actually New Zealand households and businesses that are going to be vulnerable if the Government does not do its job of being the watchdog in this sector?

The Green Party will not be supporting the changes because we believe that there is an important role for Government to play in ensuring that the economy runs in an efficient way. The best way it can do that is, actually, by greater regulatory oversight of financial services, and particularly of the insurance industry as that is an industry that has been dominated by a few big overseas players, and it is essentially too big to fail. Thank you.

It is a pleasure to take a call in the third reading of the legislation arising from the Insurance (Prudential Supervision) Amendment Bill. It is well worthwhile legislation for the House to be debating. Labour is supporting the legislation. Labour believes, however, that it does not really grapple with the fundamental problems of the insurance market and the insurance industry. It does provide welcome oversight by the Reserve Bank in a way that we think is in keeping with international best practice.

It was not many days ago that Wellingtonians experienced an earthquake of the sort of magnitude that causes people to really reflect upon their lives and the way they normally go about things. It was over 6 in magnitude. Fortunately, there were no real injuries and no loss of life, and there was only relatively minor property damage on this occasion. But we all understand that this House sits on New Zealand’s equivalent of the San Andreas fault, the Wellington fault, and the cascade of many thousands of small, medium, and large earthquakes northwards from the Canterbury fault lines that underpinned the devastating Christchurch quakes has raised in the minds of many New Zealanders the degree to which Wellington’s region, like Marlborough, is at risk of a catastrophic quake in the near future.

According to GNS, the Institute of Geological and Nuclear Sciences, the probability of a quake within the Wellington region 2 weeks ago, after the last magnitude 6-plus, was put at 21 percent over the following week. That was a one-in-five chance of another earthquake of magnitude 6-plus. It might have been 6, it might have been 7, or it might have been—God help us—an 8. The key point is that with a 21 percent chance in 1 week and a 51 percent chance in 1 year, one of two things is going to happen. Either we are going to get a devastating earthquake in central New Zealand and we are going to exceed the ability of the Earthquake Commission and reinsurance arrangements to cope or the mere probability of being rated at that level will strain the reinsurance market even if no quake occurs, because insurance is priced based on risk.

What are the consequences for New Zealand? Although this legislation deals with ensuring the transparency and probity of the operations of the insurance market—and we welcome that, as far as it goes—it does not tackle the two key underlying problems: firstly, that the Earthquake Commission’s reserves have been, naturally enough, significantly run down from coping with the Canterbury earthquakes, and we need to rebuild those reserves as quickly as possible in case we get another quake; and, secondly, that the fundamental problems in the insurance market and the escalating seismic risk around New Zealand mean that we could be in the position where there is a fundamental breakdown of the insurance market itself because insurance becomes priced out of the reach of normal commerce.

What will the Key Government do? The answer is that in the face of this historic challenge, it is tinkering with this legislation.

💬 John Hayes: What a lot of nonsense.

There is nothing in this legislation that addresses those fundamental problems, nothing in this legislation that provides support for the reinsurance market, nothing in this legislation—John Hayes is doing exercise. What a wonderful spectacle. I encourage it. You may end up with a body like Mr Goldsmith’s there very soon. And it is lovely to have Maggie Barry with us, sitting behind the lovely Judith Collins, garbed as she was today from Plantorama. It is just like Maggie’s Garden Show is back with us again. But enough mirth—enough mirth.

It is really important for New Zealand that if we get the big one, we can pay to rebuild it, and we will not get an insurance market that works off the basis of this legislation alone. [Interruption] You can always tell a Government that is in decline, because the backbenchers are getting restless. They spend their mornings counting heads between Steven Joyce and Judith Collins, knowing that the end is nigh for John Key. Either it is coming in 15 months’ time with a rejuvenated Labour Government or he is going to step down just after. Those rowdy, underutilised, frustrated, venomous backbenchers over there know that they are going to miss out on ministerial office. That is why they are all gathered around Mr Bridges. He is their only touch with greatness, and that is a pretty fading dream. Back to the callisthenics from Mr Hayes—

💬 Hon Member: Maybe you should go back to your seat.

And there we are. The parliamentary pantomime trundles on. But, in the meantime, the problems in the insurance market, unfortunately, are very real. I am very concerned, and our party is very concerned, that if there is not a more fundamental set of examinations of the insurance market, New Zealand will be caught unable to deal with the big one in Wellington or with the risks that that potential creates in the market.

I would ask the Government at what point it will lift its gaze above the tinkering that is going on in this legislation to address those questions by, for example, setting up another State insurer, which could act to provoke competition in the market and keep the international reinsurers honest. Where is the courage from this National Government? Where is the foresight? Where is the looking over the horizon from the Government that would allow it to stand up for what New Zealand really needs? The answer is that there is not any. There has not been any since we faced the great challenges of the Christchurch earthquake and the global financial crisis. The Government has just, to use its own words, muddled through. New Zealanders are despairing. You can see the hope fading in their eyes and many thousands heading to the departure gates because they expected recovery. What did they get? Stagnation. Unemployment is stubbornly high. There is nothing in this legislation to address unemployment. Unemployment is well above the projections of the Government’s own Budgets from the last 3 years—not surprisingly, because it has done nothing active to get it down.

Government members are sitting there on their cushy seats in their ministerial LTDs, climbing the greasy pole of ambition, like Mr Bridges, waiting for the market to deliver nirvana for someone more than their own mates. That is not going to work. Meanwhile, the insurance market is failing all around. The best that this Government can serve up is tinkering reform, extending the micro-regulatory powers of the Reserve Bank, and ignoring the elephant in the room, which is the fundamental escalation of risk and the inability of the reinsurance market to deal with it within a price range that will work for New Zealanders. It is yet another example of a Government that has lost its way, lost its touch, and is on the way to the departure gate. Thank you.

It is with pleasure that I rise to talk at the third reading of the Insurance (Prudential Supervision) Amendment Bill and the Reserve Bank of New Zealand Amendment Bill. This is legislation that is another significant step in achieving clear, robust regulatory arrangements across our financial sector. In keeping with much of the other fine legislation that this John Key - led Government has passed, it is specialising in cutting red tape and also cutting compliance costs. As we have heard, Labour supports this legislation. At the Finance and Expenditure Committee it went through very well. There were a couple of submissions. We had four submissions and we heard from two submitters, who recommended a change to the provision of interim financial information requirements—all very straightforward, really. I agree with and, in fact, share David Parker’s approval of the transition process, and that the Reserve Bank give oversight to all insurers and that they be licensed and supervised by the bank. They also have to comply with prudential requirements because the Reserve Bank will be both the regulator and the supervisor. I think that will give great peace of mind, really, to people in New Zealand who are worried about their insurance issues.

I would have to say that the member who just resumed his seat, the Hon David Cunliffe—who generally takes dullness and smugness to a ridiculous extreme—is now clearly buoyed up by his prospects, and contender No. 2 is proving he is somebody who has a little bit of life in him yet. He talks about risks and consequences. That is something that he knows quite a lot about. I guess that when it comes to seismic upheaval, which I suppose was the general weak theme of his discourse, then once again it is something he is fairly familiar with as someone who has experienced rather a lot of it in his own party—much of it, I feel, of his own making. He is, of course, irretrievably dull and not widely liked by his own caucus, but there is probably not enough time in this particular call to go into that in any detail.

The Greens, of course, do not support the bill. There is nothing new there. They do not really support anything that encourages growth, jobs, mining—any kind of improvement to the economy. They are, of course, consistent, and that is not a bad thing, really, because at least you know where you are with them, although I think their hopes of getting any kind of financial responsibilities under Labour, if ever it attains the Treasury benches, have diminished somewhat.

One of the final things I would say in this call is that the legislation empowers the Reserve Bank to publish and maintain on its website an official register of licensed insurers. That is going to have additional content in it, which for the first time will actually make it easy for people to shop around to find out who is good and who is not, in much the same way that the Labour Party is doing but with very limited success. Thank you. I commend these bills to the House.

It is a pleasure to rise on behalf of New Zealand First on the legislation arising from the Insurance (Prudential Supervision) Amendment Bill. It is particularly a great pleasure to rise after the MP for North Shore, and I am sure that insurance is very much on her mind, being a recent new resident of the North Shore this year, moving over a few months ago to a cliff-top property at Stanley Point. I hope the member for North Shore has taken appropriate insurance for her cliff-top property now that she has finally moved to the North Shore after nearly 18 months of living south of the bridge.

But moving on to this legislation, we in New Zealand First believe that it is a fundamental requirement for New Zealand to have profound, well-functioning, solid, robust insurance. It is most important. This has been highlighted in the last 2 or 3 years, where we have all had a huge wake-up call in terms of the risk that we face in this country, where natural disasters and other disasters of a human kind can wreak havoc on a community and can wreak havoc on a town, city, or region. As a result, it is most important that we take the risk out of that and are properly insured.

This is very much technical legislation. If you read the background to it, it is very much administrative legislation. It tidies up some loose ends, puts some greater controls in place, and makes sure that it is, overall, a more robust insurance sector. At the end of the day, it is most important because a modern economy—and we do pride ourselves, New Zealand, on thinking that we are a modern economy—does depend on having the safeguards of a sound insurance sector. The public must have confidence that the sector is sound, and appropriate prudential supervision of the sector is an important regulatory function that this Parliament must ensure is done to the very highest level.

We have scrutinised the legislation, and we feel that this is good policy. As we have said in this House many times over the last 2 years, New Zealand First will support policy where it is, in our opinion, good policy, and we will oppose any bill where we feel it is bad policy. In this particular case, this does beef up the insurance sector, we do believe it is good policy, and New Zealand First will be supporting it. We certainly hope, as a result, that the member for North Shore will also ensure that her cliff-top property has good insurance as well.

If there are no other speakers, then let me just reiterate that the Green Party—for the reasons advanced by Russel Norman, Julie Anne Genter, and me over the previous readings—will be opposing this legislation, the Insurance (Prudential Supervision) Amendment Bill and the Reserve Bank of New Zealand Amendment Bill. Rather than stretching out time, let me just pick up on one point of interest this afternoon that was raised by David Parker and explored by David Cunliffe, and that is the issue of extending the risk from 500 years to 1,000 years. The suggestion from David Parker is that, from the Reserve Bank to the insurance companies, this will no doubt increase the incentive of the insurance companies to increase the premiums. That will be passed on to the house owner, who will either be unable or unwilling to cover their own insurance, or at least will have less insurance, so it will prove to be counter-productive.

I have a high regard for pretty much everything that David Parker does and explains, but I wonder whether, in fact, he is right on this particular one, for the following reason. If the insurance company is told to extend its cover from 500 years to 1,000 years, what it is essentially doing is simply extending the time period of risk. That essential risk factor does not change. It remains the same over the 1,000 years. So if an insurance company is accepting a risk over 1,000 years, it follows, axiomatically, that it will be charging premiums over 1,000 years—precisely the same period. It is not the case that it will be taking the risk over 1,000 years and charging over 500 years. If it were, then indeed it would be justification for an increase in premium. But if, in fact, the time period for cover equates to the time period for insurance premiums, then, in fact, there will be no justification at all for increasing any premiums. Essentially, almost in an existential sense, it is New Zealand and New Zealanders through households being prepared to determine what level of risk they are prepared to cover. This does not arise, admittedly, in the context of this legislation, but it is alluded to, and no doubt, as Mr Parker and Mr Cunliffe have intimated, it will come up, or should, for consideration before very long.