Nearly $29.8 million in penalties and enforceable undertakings against New Zealand insurers in the past 12 months – and now the Financial Markets Authority – Te Mana Tātai Hokohoko (FMA) is telling the sector what it is watching next. The FMA published its second annual Financial Conduct Report (FCR) on Tuesday, setting out regulatory priorities for the 2026/27 financial year. For insurers, three focus areas are on the regulator’s radar: product design, complaints data, and fraud detection and prevention. Read against a backdrop of escalating enforcement, the report functions less as a policy document and more as a compliance checklist with known financial consequences for firms that fall short.
The enforcement record is recent and specific. The Auckland High Court ordered IAG New Zealand to pay $19.5 million in October 2025 for fair dealing breaches involving pricing errors and unapplied discounts across multiple brands and distribution partners. Tower was ordered to pay $7 million in late 2025 after misleading representations resulted in more than $11 million in overcharges to approximately 61,000 customers. Southern Cross Travel Insurance paid $1.105 million in July 2025 under an enforceable undertaking over misleading discount representations, and FMG paid $2.1 million in February 2026 after admitting fair dealing breaches related to how it described and applied certain policy terms.
The FMA said it will focus on ensuring firms prioritise consumer needs when developing new or redesigned products, while also accounting for the capabilities and limitations of their systems and processes. The regulator’s 2025/26 thematic review of product and service review practices found that most insurers conduct proactive reviews, but recurring gaps remain. Some firms treat the absence of complaints or negative indicators as confirmation that consumers are being treated fairly – an approach the FMA said does not meet its expectations. Consumer communication following product changes was also found to be inconsistent, and not always delivered through a planned, structured approach.
Legacy technology systems and manual controls were identified as a root cause of products and services not being delivered as intended – a finding that carries additional weight in light of the IAG judgment, in which the court found the insurer’s underinvestment had led to failures across the systems its intermediaries used.
That system capability problem also has a legislative deadline attached to it. The Contracts of Insurance Act 2024 takes effect on November 15, 2027, requiring insurers to present policies in plain language, shift disclosure obligations so that insurers ask consumers the right questions rather than leaving consumers to know what to disclose, and apply proportionate remedies when disclosure rules are breached. Firms that have not addressed underlying system limitations before that date face a compounding compliance problem – the FMA has said it expects insurers to be preparing well in advance.
The FMA’s complaints priority comes as dispute volumes across the sector reach their highest recorded level. The Insurance & Financial Services Ombudsman Scheme (IFSO) accepted 600 disputes for formal investigation in the year to June 30, 2025 – a 25% increase on the prior year and more than double the 285 recorded in 2022. Of those, 67% related to general insurance, with travel insurance accounting for 18% of all complaints, the third highest category behind house and motor vehicle.
The FMA singled out travel insurance by name, describing it as consistently one of the most complained-about products according to dispute resolution scheme data, and said it will carry out specific work in that area during 2026/27. From its 2025/26 monitoring, the FMA found that only some insurers have comprehensive complaints policies that are regularly reviewed and updated, and that use of complaints data to drive product improvements remains inconsistent across the sector.
The regulator said boards and executives should be treating complaints trends as a material input into product and service decisions, not managing complaints as a standalone compliance function. Financial Services Complaints Limited (FSCL), another approved dispute resolution scheme, reported 1,469 complaints in the year to June 30, 2025 – roughly double the total recorded five years earlier – with insurers accounting for 17% of investigated disputes.
The FMA’s fraud priority is directed at health and life insurers. The regulator said it will work with firms to strengthen controls to prevent, detect, and respond to fraudulent activity – including tombstoning, where policies are taken out in the names of deceased or fictitious policyholders, and non-disclosure of relevant health information during underwriting. The FMA said it will also examine how consumers affected by fraud are remediated, acknowledging that apparently complicit consumers may themselves have been manipulated by others.
The three insurer priorities sit within the FCR’s four cross-sector themes, which also cover managing conflicts from remuneration structures – a theme the FMA is applying to financial advice providers and, from July 1, 2026, consumer credit lenders. FMA Chief Executive Samantha Barrass said the annual FCR is designed to give the sector advance visibility of the regulator's direction. "By publishing this report annually, we provide transparency on the key risks and opportunities on our radar, and how we intend to address them, so industry understands our priorities and what they can expect from us," Barrass said.
From July 1, 2026, the FMA assumes responsibility for the Credit Contracts and Consumer Finance Act 2003, transferred from the Commerce Commission – bringing consumer lending under the same conduct regulator as insurance and other financial services. The FCR notes that conflicted remuneration structures in consumer credit apply particularly to motor vehicle finance providers and add-on products such as insurance, meaning the transfer has direct conduct implications for insurers operating in that distribution channel. “The addition of consumer credit to our mandate is an important step that will strengthen consumer protection and enable more consistent oversight across the financial system,” Barrass said.
For insurers, the more immediate horizon is the CoI Act. MBIE is currently developing regulations to support the November 2027 implementation, and the FMA has flagged it will continue engaging with boards and executives on preparedness. Given the FMA’s product design findings and the enforcement trajectory of the past year, firms still relying on legacy systems to deliver policy terms accurately may find that timeline shorter than it appears.
