A legislative proposal currently before New Zealand’s Parliament is drawing significant attention from the insurance sector, with industry representatives warning that the changes could disrupt established underwriting practices and affect the cost and availability of coverage.
The Financial Markets (Conduct of Institutions) Amendment (Duty to Provide Financial Services) Amendment Bill, informally known as the “Woke Banking” Bill, was introduced by New Zealand First MP Andy Foster.
The bill’s stated aim is to prevent financial institutions – including banks and insurers – from refusing services to businesses on the basis of environmental, social, and governance (ESG) criteria, unless such refusal is specifically required by law.
New Zealand First Leader Winston Peters said the bill is intended to “ensure fairness” and prevent what he describes as the imposition of “woke ideology” through ESG standards in the financial sector.
The bill would amend the Financial Markets Act 2022, requiring that decisions to deny services be based on lawful or commercial grounds, rather than non-financial considerations.
Insurers highlight challenges to risk assessment
The Insurance Council of New Zealand (ICNZ) has expressed strong reservations about the bill.
According to ICNZ chief executive Kris Faafoi, the legislation could introduce uncertainty and complexity into the insurance market, potentially leading to higher costs and reduced availability for consumers and businesses.
“Obliging insurers to provide insurance cover to specific customers may have unintended negative consequences for the insurers’ wider pool of customers on pricing and on insurance availability,” he said, as reported by Interest.co.nz.
Faafoi said that insurers routinely assess risks and make commercial decisions about which risks to accept.
He noted that some insurers specialise in certain areas, such as motor or liability insurance, and may not have the expertise or appetite to cover other types of risk, including those related to natural hazards or specific industries.
“Individual insurers have a range of legitimate reasons for insuring or not insuring a customer and these include [that] the risk may be outside an insurer’s business or expertise,” he said.
Regulatory and compliance risks
The ICNZ also raised concerns about the potential for increased regulatory intervention in underwriting decisions.
Faafoi warned that if the bill were enacted, insurers might face legal challenges or regulatory scrutiny over their decisions, leading to additional compliance and record-keeping requirements.
“This could result in litigation and additional compliance and record keeping burdens on insurers, and this would likely be passed onto consumers,” he said.
Faafoi added that the insurance sector is already facing pressures related to affordability, and that any additional costs could ultimately be borne by policyholders.
Climate risk and commercial judgement
The bill has also attracted criticism from Lawyers for Climate Action, which argues that ESG factors are not simply moral preferences but represent legitimate commercial risks, particularly in the context of climate change.
The group points out that physical risks – such as damage from extreme weather events – and transition risks – such as stranded assets – are increasingly recognised as material to financial decision-making.
Lawyers for Climate Action warned that the bill could create confusion over what constitutes a valid commercial reason for declining services, potentially discouraging insurers from accurately pricing risk.
The organisation also noted that the bill’s language is broad enough to affect not only banks but also insurers, and could have unintended consequences for the development of targeted financial products.
Insurance Business NZ
