It and the Reserve Bank yesterday released their response to insurers’ reports on what they planned to do as a result of the regulators’ conduct and culture review of the sector.

The FMA and Reserve Bank said they were disappointed. Some work plans were not deep or broad enough, chief executive Rob Everett said, and even those that were did not make it clear they were committing the resource required to deliver effectively on them.

Between them, insurers identified at least 75,000 customer issues requiring remediation worth at least $1.4 million.

Everett said the FMA remained concerned about high upfront commissions being paid to advisers.

He said insurers who were part of bank groups and sold more of their products directly to consumers had moved more quickly on sales incentives.

Those who paid commission to third-party advisers were proving more of a challenge and there had been no movement from the industry at all, he said.

The regulators had asked insurers to make it clear how they would manage the conflict of interest potential in the model of paying advisers to distribute a product.

“Some turned around and said it’ll all be sorted in the financial advice legislation,” he said.

Everett said while insurers said they understood the issues, they did not want to make a change themselves.

"If they keep saying ‘we’re not willing to contemplate change unless the Government makes us’ that’s exactly what might happen.”

Everett said New Zealand would remove commission “at its peril”, as shown by the Australian and UK experience.

But he said the model needed to be shown to be working properly. “Life insurers aren’t really accepting they have responsibility for how their products are being sold.”

There would be a first-mover disadvantage for the insurer who made the initial move to cut upfront commission, he said. “Advisers will sell through another channel.”

There could be competition issues if the industry banded together to come up with a new model.

“Most people who talk to us acknowledge the model has difficulties and complications but everyone is saying they want the Government to change it, ‘even though we don’t like it either, we’re not willing to change it’. It feels like a lack of industry leadership.”

Financial Services Council chief executive Richard Klipin said improvements were a work in progress. But he said the sector needed to do more, and faster, to improve identified issues.

“Conduct, culture and ensuring great consumer outcomes is paramount. Improvements across the sector remain a work in progress and this latest review from the FMA and Reserve Bank demonstrates that.

“Individual members will now work through their specific issues raised by the FMA and respond appropriately with steps to rectify them.

“It is important to note that there is a lot of work going on across the sector in addition to the regulator processes to improve culture and conduct. This includes the development of an FSC code of conduct, ending overseas conferences and other soft commissions, and strongly supporting the progression of the Financial Services Legislation Amendment Act.

“Good progress has been made in recent months but we need to continue to work with urgency and focus to build the trust of stakeholders and to ensure we are serving New Zealanders in a fair and transparent way.

Commerce Minister Kris Faafoi said the Government was still working on its measures to fast-track improved conduct in the sector and would make an announcement soon.