New Zealand Financial Markets Authority publishes insurer incentive findings and reinforces CoFI expectations on soft commissions

The New Zealand Financial Markets Authority has published an insights paper for licensed insurers on how non-monetary benefits and short-duration sales campaigns, often described as soft commissions, should be managed under the Conduct of Financial Institutions (CoFI) regime. The paper does not create new legal obligations, but it says these incentives can create conflicts that put fair treatment of consumers at risk and that compliance with specific incentive regulations alone is not enough. Fair conduct programmes must include effective policies, processes, systems and controls to mitigate or avoid adverse effects on consumers’ interests, and insurers should avoid offering a benefit or campaign if those risks cannot be managed. Most insurers had some arrangements to identify and manage the risks, but practices varied. The paper highlights the need for broader stakeholder input at the design stage, documented governance, record-keeping and approval processes, stronger monitoring of how incentives affect distribution behaviour and consumer outcomes, and proactive outcomes-based reviews rather than reliance on complaints or ad hoc feedback. Boards are ultimately accountable for ensuring these controls are effective, including where products are distributed through intermediaries. The FMA will test insurers’ arrangements through supervisory and monitoring work under CoFI. Where it identifies weaknesses, it expects prompt remediation, including changing or stopping benefits and campaigns that are inconsistent with the fair conduct principle, and it may issue directions, vary licence conditions or pursue civil action depending on the seriousness of the breach.