In a release, Commerce and Consumer Affairs Minister Kris Faafoi said the Government would fast-track consumer protection measures in the financial sector.

It follows the Reserve Bank and Financial Markets Authority report into life insurance conduct and culture.

”There are gaps in the regulation of the sector that are exposing consumers and we are going to address them.  We need a regime where banks and insurers are focused on good outcomes for the consumer and are not conflicted by sales rewards," Faafoi said.

“The report has found New Zealand life insurance industry has a culture that prioritises sales over customer interests and customers deserve better. Cabinet today agreed we are going to get rid of sales incentives in the insurance industry that are driving behaviour that is not in the best interest of consumers.

“Incentives such as overseas trips and loaded upfront commissions can cause a conflict for the salesperson. We have also heard about insurance policies being sold to people who are ineligible for cover, premiums continuing to be charged for a policy that’s no longer in effect, and policyholders not being effectively notified of increases in premiums.

“This, with the findings from the earlier report on banking conduct and culture, mean that we have to take action. We plan to release a consultation paper on the changes by May and introduce legislation later this year,."

He said a comparison of life insurance commissions worldwide showed New Zealanders paying a high rate of commissions – more than 20% of the cost of the premium.

In comparison, consumers in many European countries paid less than 10%, and in Australia just over 10%. Annual premiums paid by consumers for life insurance total $2.57 billion, with 4 million life insurance policies in New Zealand.

Finance Minister Grant Robertson said, while the industry had started to address issues raised in the reports, it was clear that the Government needs to act on regulation and conduct of financial institutions, including banks.

“We want to see clearer duties on banks and insurers to consider a customer’s interests and outcomes, and to treat customers fairly, an appropriately resourced regulator to monitor the conduct of banks and insurance companies, with strong penalties for breaching duties, changes applied to both banking and insurance, since the issues identified in both are similar. There are also overlaps between the sectors, with banks often selling insurance products, a strong response to internal sales incentives and soft commissions.

“Because the issues identified with insurance and banking are similar, we will consider changes that apply across both sectors.

“Also, while this report focuses on life insurers, it’s possible the vulnerabilities it identifies may exist across the broader insurance industry.

“We will consult with the public and industry on these changes, but we are going to move as quickly as possible on this because New Zealanders need to have confidence their rights and interests are being protected."

Faafoi said the consultation on these measures would run alongside work already under way to update insurance contract law.

“Current contract law is based on legislation that was written more than 100 years ago – and there are a number of improvements that need to be made. These include better disclosure protections for consumers, to address situations where insurers can completely avoid a policy when a policy holder does not disclose something – even if it was an unintentional non-disclosure or one unrelated to the claim a policy holder is making.

“It is an ambitious timeframe but my intent is to have both pieces of legislation in Parliament by mid-2020, because it is time to ensure consumers get protection that is clearly needed.”

The FMA is supplying individual feedback to the 16 life insurers reviewed, with a response and action plan on how they will address their issues due back to the FMA by June 2019.