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Failing Finance Companies - does it impact life insurers?

PWC are about to announce their fifth finance company to go into liquidation over the past 15 months. Politicians are scrambling to "find solutions" to this "investor crises". It has been suggested that the new Financial Products and Providers bill be brought forward from its scheduled parliamentary hearing date in December, so that the new conditions and regulation for financial products and their providers comes into effect sooner rather than later.

Unfortunately the proposed bill tangles up Insurance companies with Finance Companies under a broad category of "Financial Services". This leaves life insurers potentially attracting some of the adverse publicity currently surrounding investment companies.

A life insurer collects a monthly premium to cover an insured event – its financial security relates to its claims-paying capability which is a far cry from the risks associated with investing in a Finance Company that borrows money from the public and other institutions to finance property development and the like. Such finance companies are strongly subject to the vagrancies of interest rate hikes and fluctuations in the world financial markets. Life insurers are not nearly as exposed to these risks.

The question is “will the proposed regulation neutralize the effects of such financial vagrancies or will it simply add huge compliance costs for the industry and increase the barrier to entry into the NZ market by innovative new players - ultimately resulting in a less competitive environment for the consumer?” I think the latter. Interested in your thoughts

Receiverships: Five Star Consumer Finance, Nathans Finance, Bridgecorp Finance, Provincial Finance, National Finance 2000

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