If someone lost their job, they would be paid 80 per cent of their previous wage/salary for up to six months.
Levies would be capped for employees (and their employers) who earn more than $130,911 a year. Payouts would be limited accordingly.
The Government proposes that the Accident Compensation Corporation (ACC) – the state insurer that provides cover for people who get injured – runs the scheme.
But the FSC argues it would be difficult for the agency to scale up and get the expertise required to assess a potentially large number of complex claims, including those related to mental health for example, by the end of 2023 when the Government wants the scheme to become operational.
In its submission, given to the Herald on request, the FSC proposed private insurers partner with the Government to provide cover for loss of income due to illness.
It suggested Inland Revenue collects levies from employers and passes them on to private insurers. If someone needs to make a claim, they deal with their private insurer.
If they're still too unwell to work after six months, when the government scheme stops paying out, they could receive cover from their private insurer if they paid for it.
"We consider that having one provider for the entire duration of the claim is preferable to having it start with ACC and then move to a private insurer," the FSC said.
"We consider private insurers to have the skill and experience required, and the incentive to get claimants back to work as quickly as possible.
"Our concern is that moving a claim from ACC to a private insurer could result in delays, uncertainty and duplication for the customer due to potential differences in matters such as assessment criteria and terms of cover."
'Would you like fries with that?'
The FSC also said the arrangement would give private insurers the opportunity to provide clients with advice and "possibly additional products that [meet] the client's full needs".
It said private insurers' involvement would make the scheme subject to regulatory oversight – something that would be lacking if ACC administered it.
Nonetheless, the sector's regulators have been far from impressed by the way it's treated its customers.
A major conduct and culture review undertaken by the Financial Markets Authority and Reserve Bank in 2018 found "extensive weaknesses" in insurers' systems and controls, and serious risk of further conduct issues arising.
While the regulatory regime around insurers has since been strengthened, their sales tactics and use of commissions to incentivise staff have long been deemed problematic by the Financial Markets Authority.
Redundancy worries for workers
Coming back to income insurance, the FSC believed insurance wasn't the right tool to support those who face unemployment due to redundancy.
"There are few redundancy insurance policies available in the market, largely because they are considered expensive and fraught with difficulty," it said.
The FSC suggested employers be required, by law, to meet a minimum standard when it comes to redundancy entitlements.
It worried the creation of a state insurance scheme would prompt them to weaken their redundancy entitlements.
'Significant unintended consequences'
More pertinent to its members' bottom lines, the FSC also feared the scheme could motivate individuals and employers to cancel or weaken their personal or workplace insurance policies. This could leave them underinsured.
The FSC said employers that provide insurance cover for employees, as well as individuals with private insurance, should be allowed to opt out of the state scheme. This would make the scheme comparable with those overseas.
The FSC also warned the scheme would shrink the private insurance market and increase the cost of private insurance.
On a higher level, it feared the scheme would cost more than government officials had forecast at $3.5 billion a year. It said actuarial analysis was required, as the economic models used by government officials weren't up to scratch.
It worried people could rip off the system by delaying getting a new job while they received up to 80 per cent of their previous income for six months.
"Our members are concerned that the NZIIS [New Zealand Income Insurance Scheme] will result in significant unintended consequences if it progresses as proposed," the FSC concluded.
"Steps need to be taken to ensure that the benefits of the NZIIS are realised by a sufficiently large portion of the population in order to justify spreading the cost of the NZIIS across almost the entire working population."
Progress delayed
The Herald is gathering submissions on the proposed scheme from other relevant parties and individuals, including the Child Poverty Action Group, and will cover these in subsequent stories.
The consultation closed on April 26, but MBIE is delaying publishing the 2000-odd submissions it has received.
Its acting manager for the scheme, Andrew Marshall, said submissions are now expected to be published in October. In July, MBIE said submissions would be released in mid-August.
Marshall said, "The submissions need to go through the usual release process which includes allowing sufficient time for officials to thoroughly read submissions and develop further policy advice.
"Prior to release, submitters need to be advised of the release and be provided with sufficient time to respond, as well as practical steps such as redaction of personal information."
