Conflicts of interest stemming from insurer incentive programmes are not being handled uniformly across New Zealand’s insurance sector, with the Financial Markets Authority (FMA) identifying gaps in how some companies govern and monitor the soft commissions they offer to intermediaries, such as financial advisers. The regulator has indicated it will incorporate compliance testing into its ongoing supervisory work under the Conduct of Financial Institutions (CoFI) regime, and that insurers found to be non-compliant face potential regulatory consequences.
The FMA began the review after observing that certain insurers were running incentive schemes – including non-monetary rewards and time-limited sales drives – directed at third-party distribution channels. The regulator wrote to insurer chief executives in June 2025 and followed up with targeted inquiries to examine how individual companies approach the design and oversight of these arrangements. The resulting document, published June 11, 2026, does not introduce new legal obligations but sets out what the FMA expects to see in practice under existing CoFI requirements.
Michael Hewes, director of deposit-taking insurance and advice at the FMA, acknowledged that industry conduct has shifted since the agency examined conflicted remuneration in 2018, but said the underlying risks have not gone away. “These benefits and campaigns, or soft commissions, have a place but insurers should actively consider these risks to ensure their fair conduct programmes are designed to support fair treatment of consumers. We want these insights to support insurers to take consumers’ interests into account when designing, offering, and managing benefits and campaigns,” Hewes said.
The CoFI regime requires insurers licensed under the Financial Markets Conduct Act 2013 to have a fair conduct programme (FCP) in place. An FCP must include documented policies, processes, systems, and controls – commonly abbreviated as PPSCs – that address how the insurer identifies and manages conduct risks, including those that arise from incentive arrangements with staff, agents, and intermediaries.
The FMA has drawn a distinction between meeting the minimum threshold of incentive regulations and satisfying the broader obligations of the CoFI regime. Passing a regulatory compliance check on an incentive does not, on its own, demonstrate that the incentive is consistent with the fair conduct principle. Where an insurer cannot adequately manage the consumer harm risk posed by a particular benefit or campaign through its existing PPSCs, the FMA expects the insurer to reconsider whether that incentive should be offered at all. Board-level accountability is a recurring theme in the FMA’s expectations. Directors are expected to maintain active oversight of conduct risk rather than treating it as a function delegated entirely to management.
During its inquiries, the FMA found differences in who gets involved when insurers put together a new benefit or campaign. Some companies drew on a narrow set of internal stakeholders – typically those within distribution, marketing, and campaign functions – without bringing in broader perspectives that might surface consumer risks at an earlier stage. Others operated multi-layered approval processes that escalated to board level depending on the scale or nature of the incentive. A smaller number used a formal risk-rating framework to calibrate the degree of oversight applied to each arrangement.
The FMA noted that broadening the initial design stage beyond distribution, marketing, and campaign managers to include a wider range of stakeholders would allow insurers to identify potential risks and assess alignment with the fair conduct principle earlier in the process. Documentation also emerged as an area of concern. The regulator requires insurers to keep records that allow adequate assessment of adherence to the fair conduct principle, and it expects those records to include written procedures for how benefits and campaigns are designed and approved – even in cases where no such incentives are currently being offered. The FMA said clearly defined roles and responsibilities are particularly important for higher-risk arrangements.
The FMA found a similar lack of consistency in how insurers track the effects of their incentive programmes once they are running. Some conducted formal reviews only after a benefit or campaign period had ended, while others maintained oversight throughout. Engagement with intermediaries and distribution partners during the review process also varied – in some cases external feedback was actively sought, while in others the assessment was handled internally without input from the distribution chain.
The FMA expressed concern about insurers that rely primarily on complaints or informal feedback as their main indicator of whether consumer outcomes are acceptable. The regulator described this approach as unlikely to catch emerging problems early enough, particularly given that some consumer harms may only become apparent well after a campaign has concluded. In contrast, the FMA pointed to outcomes-focused reviews – those that examine the full customer experience and assess whether products were suited to consumer needs, whether consumers understood what they purchased, and how the incentive affected behaviour throughout the distribution chain – as providing stronger assurance that the fair conduct principle is being met.
The FMA said it will use its supervisory and monitoring activities to test whether insurers’ FCPs are working as intended in practice, and that it will not accept planned remediation or monitoring as a substitute where an underlying arrangement does not meet fair conduct programme minimum requirements. Where the regulator identifies material weaknesses, it will expect prompt remedial action, up to and including withdrawing or restructuring benefits and campaigns that cannot be made consistent with the fair conduct principle. Insurers that fail to meet their CoFI obligations face a range of regulatory responses. These include direction orders requiring specific remedial steps or governance improvements, changes to licence conditions, and civil action, depending on the seriousness of the breach.
