When the Government’s Minister of Finance Grant Robertson announced details of a proposed State-backed income insurance scheme, RiskinfoNZ asked industry leaders for their reaction to the plan.
Under Robertson’s proposal, a 1.39% tax will be applied to the wage bill of all employers as well as to the income of all wage earners. In essence, the tax will generate around $4 billion for government each year, and help support the 100,000 people who find themselves out of work each year.
If implemented, the plan will provide an income of 80% of an employee’s wages for seven months if they are too ill to work or lose their job through redundancy.
Robertson says the key features of this new tax are:
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A four-week notice period and four-week payment, at 80% of salary, from employers
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A further six months of financial support from the scheme, including support for training at 80% of wages or a salary
Grant Willis, Head of Asteron Life, says the firm is “…keen to work collaboratively with the Government to understand how this scheme and private insurance might work together to enhance New Zealanders’ financial resilience”.
A spokesperson for Fidelity Life says the firm is broadly supportive of ideas that help educate New Zealanders about the importance of protecting what’s important to them, and help address New Zealand’s under-insurance problem.
“We’re still assessing the proposed scheme, what it might mean for our business and whether we’ll make a submission [as part of the consultation process],” says the spokesperson.
Cigna’s CEO Gail Costa, says while the proposed scheme looks to be a positive initiative, it won’t cover anyone’s full insurance needs.
“Based on the information we currently have, we think the proposed scheme complements the work done by our industry and the products we offer by providing a limited amount of short-term cover,” she says.
“If adopted, we’d encourage anyone wanting to understand how the scheme impacts them and what the right level of cover is for their needs – both in the short and long-term – to talk to a financial adviser.”
Costa says she’ll be working with industry bodies on a response as part of the government’s consultation process.
The Acting CEO at AIA NZ, Sharron Botica, says she welcomes any proposal that helps address the need for Kiwis to be better financially protected.
“AIA welcomes the opportunity to be a part of the conversation and we intend to provide a submission to the consultation document,” she says.
“At this stage, it is too early for us to comment specifically on potential impacts to AIA’s products.“
Katrina Shanks, CEO Financial Advice NZ, says Robertson’s ideas “…is interesting”.
“When developing policy a key consideration is what are you trying to fix?” says Shanks. “Has the problem being quantified and what is the evidence supporting the problem?
“Is there a significant problem with people being able to obtain insurance which provides these protections?”
Shanks says New Zealanders are underinsured, but the starting point is to understand why.
“A consideration is if the market already functions in this area effectively, is the issue access?” she says.
“There are many ways to obtain access to an effective market through new initiatives such as people accessing their KiwiSaver funds for personal protections, providing tax deductions for personal insurances and working with providers to create innovative products.
“In addition to this you need to consider whether now is the time to add another levy onto both the employee and employer in times of rising inflation.”
Annual inflation is running at almost 6%, currently standing at 5.9% – up from less than 2% a year ago according to the RBNZ and the highest rate since the 1990s.
Richard Klipin, CEO FSC welcomes Robertson’s discussion paper saying the development of a national income insurance scheme is a “…significant step and one that needs to be carefully considered”.
“We look forward to engaging constructively with the proposal and ensuring the voice of our members is heard as the Government refines and develops the policy from here,” he says.
“With unemployment currently at a historical low and a large fiscal cost to the scheme, it’s essential Government takes the time to get this right and that industry feedback is taken onboard.
“We know that the future of work is going to be dynamic and challenging and consideration of an income insurance scheme will be an important part of it.”