New Zealand insurers get set for new conduct regime

New Zealand’s Parliament has passed legislation for the establishment of a new conduct regime to shore up consumer protections across the insurance and banking sectors.

Insurers will need to comply with a “fair conduct principle” to treat consumers fairly and they will be licensed by the Financial Markets Authority (FMA) in relation to their general behaviour under the new law.

As part of the legislative changes, insurers are required to establish, implement, and maintain a program designed to ensure compliance with the “fair conduct principle” and take all reasonable steps to ensure compliance.

Sales incentives based on volume or value targets like bonuses for selling a certain number of financial products are also banned under the new regime.

FMA says it will consult with the industry for the new licensing requirements, with applications expected to open in the middle of next year.

The Ministry of Business, Innovation and Employment will also develop supporting regulations for the new conduct regime, which is expected to come fully into force in early 2025.

Minister of Commerce and Consumer Affairs David Clark says the passage of the Financial Markets (Conduct of Institutions) Amendment Bill “ensures financial institutions put customers before profits”.

“People place a lot of trust in their banks and insurers, which play an integral part in their lives, and this new regime will help to tilt the balance back towards the consumer by protecting them from bad behaviour that could leave them vulnerable,” he said.

The reforms were introduced after reviews by the FMA and Reserve Bank of New Zealand found insurers and banks lack focus on good customer outcomes, and have insufficient systems and controls to identify, manage and remedy conduct issues.

“Further, New Zealand has been an outlier internationally in not having conduct regulation of banking and insurance services. This important regime will fill that gap,” Mr Clark said.

FMA CEO Samantha Barrass says the reforms will enhance the culture of core financial services, with a focus on putting conduct and the fair treatment of customers at the heart of every business

“Firms will be held to account by the FMA for the way they sell products and look after their customers,” she said. “This brings New Zealand into line with comparable countries overseas.”