The Financial Markets Authority has found insurers relying on intermediaries to sell add-on insurance and extended warranties lack oversight proportionate to the risks of commission-based distribution, a finding that lands just weeks after the regulator flagged soft commission practices as a separate area of concern.

The review covered products such as mechanical breakdown insurance, guaranteed asset protection insurance, payment protection insurance and extended warranties - policies typically sold through highly intermediated channels including retailers and dealerships rather than by dedicated brokers. Michael Hewes, the FMA's director of credit, deposit-taking, insurance and advice, said insurers "cannot outsource the responsibility for fair consumer outcomes" even where products are sold through third parties.

The review found a recurring gap between the policies and controls insurers described and how those controls actually operated, with distribution oversight flagged as the area needing the most improvement. Insurers could describe onboarding and training arrangements for intermediaries but showed limited evidence of monitoring proportionate to the risks of commission-based sales models.

That finding follows closely on a separate June review into insurer incentive schemes directed at third-party distribution channels, including non-monetary rewards and time-limited sales drives aimed at financial advisers, which the FMA said it will now build into its ongoing supervisory work.

The add-on insurance review also arrives against a backdrop of intensifying enforcement: insurers have faced close to $29.8 million in penalties and enforceable undertakings over the past 12 months, including a $19.5 million penalty against IAG New Zealand in October 2025 for fair dealing breaches spanning multiple brands and distribution partners.

For brokers and advisers who distribute add-on products alongside their core business, the pattern is worth watching closely: insurers are likely to tighten monitoring, documentation and training requirements for intermediaries in response, and commission structures themselves may come under closer review as the FMA continues building compliance testing into its supervisory work under the CoFI regime.