FMA RBNZ Life Insurer Conduct and Culture Review January 2019

Click here to view the full ‘FMA RBNZ Life Insurer Conduct and Culture Review January 2019’ document.


The overall objective of this review was to understand whether there are widespread conduct and culture issues present in life insurers in New Zealand, and to understand how life insurers identify and remediate issues.

The conduct of life insurers directly affects customers, regardless of whether the insurers sell insurance directly or through other parties. High standards of conduct support the fair, sound, efficient and transparent provision of insurance, and confident participation in the insurance market by insurers, intermediaries and customers. Poor conduct is a contributing factor to poor customer outcomes, and can result in a loss of trust and confidence in the life insurance industry.

One of the key drivers of conduct is culture. Culture influences how managers and staff behave on a daily basis. An effective organisational culture is one that consistently puts the customer at the centre of decision-making, product design, sales, advice and claims processes, and all day-to-day activities.


All insurers need to make substantial improvements to how they identify, manage, remediate and report on conduct risks and issues, to deliver consistently good customer outcomes. Insurers need to take our recommendations seriously, and proactively work to achieve maturity in this area. The following recommendations apply to all insurers and should form the basis of their plans.

The role of boards

  • Boards need to take responsibility for setting the tone from the top, improving the insurer’s conduct and culture, and articulating how these are integrated into the business strategy and risk appetite. This includes having a clear plan for change that sets targets, assigns responsibility, includes milestones to ensure accountability, and ensures information flows down to all parts of the organisation. A focus on good customer outcomes should underpin this work.
  • Boards need to clearly articulate their expectations for how to manage conduct risk within the business, including who is responsible and what reporting is required. For insurers with foreign ownership, boards need to ensure policies and processes are appropriate for New Zealand staff and customers. Boards of bank insurers need to ensure they operate independently and with influence within the wider banking group to ensure good governance and conduct risk management within the life insurance arm.
  • Boards need to have sufficient information to satisfy themselves that issues are being adequately identified, and to challenge and hold senior management to account on conduct and culture matters.

Oversight of intermediaries

  • Insurers need greater oversight of how intermediaries are selling and managing their products. While insurers and intermediaries both need to be responsible for ensuring customers experience good outcomes, it is the insurer who is ultimately accountable for this.
  • Intermediaries need to receive comprehensive training on insurer’s conduct expectations, and on all aspects of the insurer’s products (including customer suitability) before they can sell them. They should also be subject to ongoing accreditation to ensure knowledge is maintained.
  • Insurers need a robust and transparent policy and processes for dealing with misconduct by intermediaries.

Product design, training and support

  • New products should be designed to provide good customer outcomes. Target markets and intended outcomes for products need to be clearly identified and articulated. Products (including policy wording) should be presented clearly, such as through the use of plain English.
  • Products (including definitions of covered or excluded conditions) should be reviewed on a regular basis to ensure they remain relevant and continue to provide the intended cover and are fit for purpose.
  • Staff should receive ongoing comprehensive training on all aspects of the products they sell and support, including design, suitability, distribution, post-sale advice and claims handling.
  • Insurers need a communication strategy that sets out how often and in what circumstances customers are contacted. Insurers should have oversight of all communication about products that takes place through intermediaries.
  • Insurers need to proactively and regularly encourage customers to consider their needs and whether their current insurance policy is still suitable, particularly where the customer’s circumstances might have changed.

Policies and processes

  • Risk management policies need to be appropriate and incorporate all material risks in the business, including consideration of conduct risk. Policies should set out roles and responsibilities, outline systems and processes to monitor and control material risks, and be subject to regular review.
  • Insurers must have a relevant code of conduct, and educate staff on what good conduct and culture looks like, focusing on good customer outcomes. Insurers should foster a ‘no-blame, speak-up’ environment to encourage staff to disclose conduct issues, and whistleblower processes must be accessible, confidential and independent.
  • Insurers need to develop clear policies, processes and training for staff for identifying and dealing with vulnerable customers.
  • Insurers need to prioritise investment in improving internal systems, processes and controls (including reporting mechanisms), in order to effectively monitor and manage conduct risk within the limits articulated in the risk appetite statement set by the board.
  • Insurers need to have systems to review the advice provided at, and after, the point of sale, and customer outcomes over time.

Identification and remediation of issues

  • Insurers need appropriate systems and processes to record and resolve customer complaints and incidents. This includes defining what complaints and incidents are, and training staff on how to deal with these situations.
  • Insurers need to establish formal remediation frameworks, policies and processes, and dedicate appropriate and sufficient resources to the operation of them. They should emphasise that issue identification and remediation needs to be proactive and undertaken without undue delay.


  • We expect insurers to remove or substantially revise incentives linked to sales for frontline salespeople and all layers of management within their organisation (no later than the first performance year after 31 December 2019). Where sales incentives are not removed, insurers need to explain how they will strengthen their control systems to adequately mitigate conflicts of interest and risks to customers.
  • We expect insurers to review their commission structures and volume bonuses for intermediaries – including structures with very high upfront commissions – to ensure they are incentivising intermediaries to deliver good customer outcomes. In our view, high upfront commissions are not acceptable as they drive poor conduct and can result in poor customer outcomes.
  • We expect insurers to change their qualifying criteria for soft commissions to ensure they mitigate conflicts of interest and incentivise advisers to improve customer outcomes rather than just reward them for the volume or value of products sold.
  • Authorised Financial Advisers (AFAs) are required to disclose all commissions to customers – we expect insurers to encourage all intermediaries to disclose this information.