FMA Letter to Insurers Regarding Incentive Structures and Fair Conduct Obligations

Dear XYZ, 
 
 
In March, I wrote to all chief executives of New Zealand’s financial institutions reiterating our expectations with the commencement of the Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI).  
 
I highlighted new obligations, in particular incentive regulations, and reiterated our position on the detrimental impact volume and value-based incentives have on fair consumer outcomes. A copy of the letter can be found on the FMA website¹. 
 
Financial institutions are subject to a fair conduct principle that says they must treat consumers fairly. The requirement to treat consumers fairly includes:  

• paying due regard to consumers’ interests  
• acting ethically, transparently, and in good faith  
• assisting consumers to make informed decisions  
• ensuring the products and services the financial institution provides are likely to meet the requirements and objectives of likely consumers (when viewed as a group)  
• not subjecting consumers to unfair pressure or tactics, or undue influence. 

All financial institutions are required to establish, implement and maintain an effective Fair Conduct Programme (FCP) designed to ensure their compliance with the fair conduct principle.  
 
Since the 2019 Life Insurance Conduct and Culture review² and the 2018 Conflicted Remuneration (soft commissions review)³ we have consistently repeated our expectations, “when insurers encourage advisers to sell their products it must not be to the detriment of the customer.”  Consumers may not be aware of additional incentives an adviser is receiving for selling the products. 
 
We have recently observed some insurers offering non-monetary benefits, and short duration sales campaigns designed to drive business from intermediated channels (e.g. brokers, advisers and other third parties). Such inducements increase the risk consumers will be sold a product or service that does not meet their needs, unnecessary payment of additional premium, or having a poor claims experience because their interests have not been prioritised. 

We are concerned that these sales campaigns create a misalignment which put at risk the fair treatment of consumers. These campaigns could result in intermediaries not complying with their financial advice obligations and insurers not meeting their CoFI obligations. 

We are requesting you to take the following actions by 11 July 2025. 

• Confirm in writing to the FMA whether you offer non-monetary benefits, and short duration sales campaigns to your employees, agents and/or intermediaries.  
• If you do offer non-monetary benefits, and short duration sales campaigns to your employees, agents and/or intermediaries, provide the FMA with assurance that the incentives comply with CoFI incentive regulations, and that the policies, processes, systems and controls in your FCP are operating effectively to ensure consumers are treated fairly when these incentives are offered. 

Consumers have the right to fair treatment through quality and unbiased advice. We believe non-monetary benefits, and short duration sales campaigns provided by insurers continue to exacerbate the risk of poor customer outcomes.   
 
If you would like to discuss the contents of this letter, please feel free to contact myself, Michael Hewes or Jane Brown. 
 
Yours sincerely  

Clare Bolingford 
Executive Director – Regulatory Delivery  
 
 
Cc:  
Michael Hewes (Director – Deposit Taking, Insurance and Advice) 
Jane Brown (Head of Insurance)  

¹  FMA Letter to CoFI-Licensed Financial Institutions

²  Life Insurer Conduct and Culture [PDF 815KB]

³  Conflicted remuneration (soft commissions) in the life and health insurance industry [PDF 661KB]