"If we did proceed further with the concept, it would require considerable additional analytical work and further consultation," the Reserve Bank said.
An insurance policyholder guarantee scheme would see insurers pay levies into a fund, which would be tapped into if an insurer couldn't meet its claims obligations.
Depending on how the scheme was designed, the policyholder might only get part of their claim paid out.
The scheme would shift the cost of a company collapse from the Government, which might be pressured to step in and assist policyholders, to insurers that would pass costs on to their customers.
It would be similar to a regime being implemented to ensure depositors get some of their cash back in the event of their bank or other deposit taker collapsing.
Summarising feedback it received from insurance companies and industry bodies on the insurance policyholder guarantee scheme, the Reserve Bank said, "They felt a scheme should be unnecessary if other regulatory settings were correct; would risk moral hazard; would increase costs for policyholders (in a market that already showed signs of underinsurance); and would be an inefficient way of providing protection.
"Most industry stakeholders felt that current policyholder protection was good, though one stakeholder suggested more attention could be paid to regulating risk management and resolution planning."
The Financial Services Council and Insurance Council of New Zealand also made the point that similar schemes overseas cover insurance products that aren't provided in New Zealand – i.e. compulsory motor insurance and private pensions.
"The closest products to these may be annuity or income protection policies where policyholders are dependent on the insurer for payments over a prolonged period and are relatively small product classes which does not warrant a scheme for the entire industry," the Financial Services Council said.
In addition to receiving 19 full submissions from the insurance industry, the Reserve Bank received 19 short submissions through an online survey. It also used focus groups to investigate public understanding of the risk of insurer failure and public attitudes to the trade-off between financial security and the cost of insurance.
"Our focus group research suggested that most policyholders had not considered the risk of insurance failure [hence, in part, limited engagement with insurer financial disclosures]," the Reserve Bank said.
"Once informed about the possibility of insurer failure and the Reserve Bank's risk appetite, most [but not all] policyholders in our focus groups expressed some willingness to pay a little more in order to procure 'fully guaranteed insurance', so long as any increased costs would not increase insurer profits."
