The International Monetary Fund has outlined the improvements it thinks should be made to the regulation of insurance and insurance brokers in New Zealand.

It reviewed the insurance sector as part of its Financial Sector Stability Assessment of this country.

An initial report was released at the start of the month, followed by a detailed assessment.

It pointed to a number of concerns within what it said was a highly concentrated and Australia-dominated insurance sector.

It said high rates of commission paid to brokers could be hampering growth and there needed to be more scrutiny of brokers and insurance conduct, but that would require more resources.

“The government and the FMA have been moving in this direction under recent legislation and in the FMA’s supervisory initiatives, including on high life insurance commissions.

"The current approach takes account of the relatively limited conduct risks in insurance, given the product range, while self-regulation by industry bodies is developing and there is a well-established system for disputes resolution. However, there is a need, which the government is addressing, to enhance the deliberately low-intensity regime currently applying to most independent insurance advisers and brokers, which does not include even basic competence and disclosure requirements; to extend the range of conduct of business requirements specific to insurance beyond the current focus on advice; and to ensure that the appropriate requirements apply to all insurance activity, including sales without advice and ancillary sales.”

It suggested the FMA should be given enhanced enforcement powers and insurance-specific expertise.

“The government should revise the legislation (as already planned) to strengthen or remove the registration-only regime currently available to intermediaries, introducing minimum requirements for competence and disclosure that apply to all advisers, including insurance brokers," it said.

"The government should consider a proportionate regulatory regime for insurance intermediation not currently captured by the legislation, including pure sales and intermediation where ancillary to another line of business. The FMA should assess the need for insurance-specific requirements on intermediation as well as an insurance-specific work program, taking into account its overall assessment of risks in financial markets. In that context, they should assess their need, in the medium and longer terms, for more insurance-specific skills and expertise."