Everett says the insurance industry has been warned for many years to improve its conduct and how it treats customers, but little has changed in that time.

As a consequence the Government is going to fill the regulatory gap "comprehensively".

"I’m not one to want to regulate the life out of any business but the industry had years to prepare itself and was found to not have been paying sufficient attention. Given the forest fire going on in Australia over the last five years or so, and certainly well before the Royal Commission was established, I find that hard to comprehend."

Everett, speaking at a Transparency International event, said that ever since his first speech as FMA chief executive in 2014, he has been trying to get the industry to focus on the behaviours it rewarded and how it monitored conduct.

It was a message repeated over the years. Last year the FMA and Reserve Bank presented conduct review reports into bank and life insurers and it showed little to no engagement by the sector with the FMA's conduct guide.

“I would love to think that, given we found relatively few signs of any systemic misconduct in our two reviews, we could assume that the industry here had learned from the lessons of the UK, US, Australia and a host of other countries,” Everett said.

“Sadly, our review told us that whilst much of the industry was confident that it had not happened here - and wasn’t going to - there wasn’t as much evidence as we would have expected of institutions having done all of the hard yards necessary to make that a realistic assessment.”

He said the regulators had told the Government that they did not believe enough had been done to address the risk to consumers.

"We recommended that the government level the playing field that exists between core retail banking and insurance and the FMC Act authorised sectors such as retail funds management, derivatives and the regulated parts of financial advice," Everett said.

He said it now looked as though the Government was going to fill the regulatory gap "comprehensively".

“We can debate endlessly as to what ‘fair’ means and how a regulator is going to determine that. Nonetheless, I strongly support the inclusion of a high-level statutory obligation in any new legislation demanding that providers of financial services prioritise serving their customers’ needs in a fair way. The AFA code of conduct talks about acting in the customer's interests and notwithstanding semantics I think these have been important and worthwhile principles to lay out for advisers.”