A regulatory review of add-on insurance in New Zealand has found shortcomings that disadvantage consumers, singling out oversight of distribution partners as a pressing area of concern.

Insurers were generally able to describe onboarding processes and training arrangements for intermediaries, but the Financial Markets Authority probe found “limited evidence” these were structured and embedded within a broader distribution framework.

“In practice, oversight was often not independent and lacked effective challenge,” the authority said. “For example, individuals responsible for overseeing intermediaries were, in some cases, also responsible for driving sales performance.”

The authority says distribution oversight is the “clearest area” where industry uplift is needed.

“Add-on insurance products are commonly sold through intermediaries who generally do not provide financial advice on the product and are often remunerated through commission-based arrangements.

“These characteristics can create conduct risks where consumers may have limited time or information to assess whether a product meets their requirements, understand key features or exclusions, or make a fully informed decision about purchasing it.”

The authority says insurers remain responsible for consumer outcomes from products delivered through their distribution arrangements, including through intermediaries.

The FMA review, which also covered extended warranties, examined nine insurers including all larger providers.

Insurers’ failure to consistently identify and respond to emerging conduct risks is another concern.

Most insurers described having processes to tell consumers how to make complaints and about the availability of free and independent external dispute resolution schemes. However, these were not always clearly visible or accessible.

“Consumer complaints, claims, feedback and other interactions can provide important insights into how products and distribution arrangements operate in practice,” the FMA said. “They can help insurers identify emerging issues, understand consumers’ experiences, and determine whether changes are needed to address unfair treatment and improve outcomes.

“Insurers need to have effective arrangements to ensure consumers can raise concerns easily, issues are addressed fairly and promptly, and information obtained through consumer interactions is used to identify, escalate and respond to unfair treatment and poor outcomes.”