Ensuring fair consumer outcomes from insurer benefits and campaigns

Insurer benefits and campaigns insights Page 2 Fair treatment and incentives Under the CoFI regime, insurers must treat consumers (including potential consumers) fairly. This is the fair conduct principle7 , which also applies when the insurer’s relevant services or associated products8 are provided through intermediaries. Insurers must establish, implement and maintain an effective FCP in accordance with the provisions of section 446J of the Financial Markets Conduct Act 2013 (FMC Act)9 . In addition to complying with incentive regulations, insurers’ FCPs must include effective PPSCs for designing and managing incentives. This requires insurers to consider the potential impact of their incentives – including benefits and campaigns – on consumers when creating and updating these PPSCs. Some benefits and campaigns may be inconsistent with this requirement even where they do not amount to a prohibited incentive. Where benefits and campaigns create, or risk creating, adverse effects on consumers’ interests, and those risks cannot be effectively managed through the PPSCs in an FCP, insurers should consider whether it is appropriate to offer that benefit or campaign at all. For example, if the effect of any incentive is that one product is disproportionately promoted, and it results in customers’ objectives not being met, we expect the insurer to not offer the benefit or campaign if its PPSCs can’t effectively address that risk. Insurers’ boards are ultimately accountable for ensuring their FCP and PPSCs are effective, and for complying with incentives regulations and the CoFI regime. We expect directors to take a proactive approach in relation to oversight of conduct risk. Background In May 2018, the FMA published ‘Conflicted remuneration (soft commissions) in the life and health insurance industry’ 10 (the 2018 report). The 2018 report identified that soft commissions could influence behaviour and create conflicts of interest which, if not appropriately managed, may lead to poor consumer outcomes. While the regulatory context has evolved since then, the nature of the risks highlighted in the 2018 report remains relevant under the CoFI regime:

• recommending a product or value of insurance cover that is not suited to customer needs
• failing to properly analyse customer needs and instead focusing on selecting products that provide a
  soft commission
• failing to exercise due care when dealing with vulnerable customers
• recommending that a customer replaces their policy with another policy so that the chance of the
  adviser receiving a soft commission increases.
  Within the context of the CoFI regime, insurers should actively consider these risks to ensure their FCP is designed to support fair treatment of consumers. In April 2025 the FMA wrote to financial institutions11 reminding them of their obligations under the CoFI regime. We highlighted our concern that prohibited incentives can be detrimental to fair consumer outcomes. In June 2025, we followed up by writing to chief executives of insurers12 noting that we had observed some insurers offering benefits and campaigns designed to drive business from intermediated channels (e.g. 7 FMC Act 446C 8 FMC Act s446D 9 FMC Act s446G 10 Conflicted remuneration in the life and health insurance industry 11 FMA Letter to CoFI-Licensed Entities 12 FMA Letter to Insurers on Incentives & Fair Conduct

Insurer benefits and campaigns insights Page 3 financial advisers and other third parties). We considered it necessary to engage with insurers as these incentives, if not carefully managed, have the potential to create conflicts of interest that put the fair treatment of consumers at risk. We asked insurers to confirm if they offer such incentives, and provide assurance that these comply with CoFI regulations and that the PPSCs in their fair conduct programme are operating effectively to ensure consumers are treated fairly when these incentives are offered. We made further enquiries with some insurers to understand how they design and manage benefits and campaigns. Delivery of benefits and campaigns Our enquiries with insurers sought to understand how they design and manage benefits and campaigns, including how they take account of consumers’ interests. We outline below what we learned about insurers’ practices in this area, along with questions that would be useful for insurers to consider when offering benefits and campaigns. Design of benefits and campaigns Benefits and campaigns can create conflicts of interest that compromise the fair treatment of consumers. The PPSCs in insurers’ FCPs should provide a framework for those involved in designing benefits and campaigns to ensure consumers’ interests are considered. Designing benefits and campaigns may include:

• determining the nature of the incentive, including criteria for who will be eligible to receive it
• identifying and assessing risks and conflicts
• identifying and implementing controls to mitigate those risks and conflicts
• consulting with internal and external stakeholders
• review and approval processes.
  We found that while most insurers have implemented PPSCs to identify and manage conflicts of interest arising from benefits and campaigns, these methods vary:
• Some insurers appear to only involve a narrow group of stakeholders in the initial design stage of their
  process. By broadening the initial design stage beyond distribution, marketing and campaign managers to include a wider range of stakeholders, insurers can obtain feedback earlier in the process to ensure alignment with the fair conduct principle and identify potential risks.
• Others have multi-layer approval processes and, depending on the nature or value of the incentive,
  different levels of board visibility or approval.
• Some apply a risk rating to their benefits and campaigns to determine the level of approval and
  oversight.
  We require insurers to keep records that enable adequate assessment of adherence to the fair conduct principle. This includes having documented procedures for designing and approving benefits and campaigns. It is helpful for the processes to outline what type of benefits and campaigns may be offered, regardless of whether such incentives are currently offered. This approach strengthens governance and helps mitigate unfair treatment of consumers by preventing unplanned or ad hoc implementation. Roles and responsibilities for steps in the process, including approvals and management of risks related to approved benefits and campaigns, should be clearly articulated – particularly in relation to higher-risk offerings.

Insurer benefits and campaigns insights Page 4 Questions for insurers

• How could proposed benefits and campaigns impact the fair treatment of consumers?
• How have you decided what consumer outcomes may arise in relation to benefits and
  campaigns, and whether they are consistent with the fair treatment of consumers?
• What inherent conflicts of interest may arise and how do you effectively manage these so that
  consumers are treated fairly?
  Managing benefits and campaigns
  Insurers are responsible for ensuring their products and services are distributed in a manner that is consistent with the fair conduct principle and comply with incentives regulations – including when an intermediary is involved. Controls should be designed to be able to identify and respond to emerging risks and issues before they cause consumer harm. The controls that are relevant will vary depending on the nature, scale and complexity of the business, its products and services, and distribution methods. The management of benefits and campaigns includes activities undertaken by the insurer during and after a benefits and campaigns period. This may include processes to oversee the operation of the incentive, including how the incentive is influencing the behaviour of those in the distribution chain such as staff and intermediaries, and the decisions of consumers. Other aspects of managing benefits and campaigns may include evaluation of controls, reviews of consumer outcomes, and timely consideration of whether a benefit or campaign should be changed or withdrawn. For benefits or campaigns that operate over an extended period, insurers should assess throughout this lifecycle whether the PPSCs continue to effectively ensure incentives are designed and managed to mitigate or avoid adverse effects on consumers’ interests. We found that while most insurers had some level of oversight of their benefits and campaigns through monitoring and reviews, this varied across insurers:
• Some insurers completed a review at the end of a benefit or campaign period, while some conducted
  monitoring throughout.
• Some did not appear to have considered intermediary incentives when reviewing distribution methods
  against the fair conduct principle.
• Levels of involvement by intermediaries and distribution partners differed. In some cases feedback from
  advisers or external partners was actively sought, and in other cases reviews were managed internally.
• Some insurers incorporated a mix of quantitative and qualitative data in their review process, while
  others relied on complaints or ad hoc feedback.
  We encourage insurers to take a proactive and outcomes-focused approach to overseeing the operation of benefits and campaigns. Outcomes-based reviews offer greater assurance of fair treatment of consumers when they evaluate the entire customer experience and overall outcomes, rather than focusing solely on compliance with individual procedures or policies. These reviews may consider whether consumers were treated fairly, whether the products offered were suitable for their needs, whether they understood their purchases, and how the benefit or campaign influenced consumer and distribution channel behaviour.

Insurer benefits and campaigns insights Page 5 Relying solely on reactive controls, such as complaints and other ad hoc feedback, is unlikely to be sufficiently effective to ensure consumers have been treated fairly, because it may not identify emerging issues early. Longer-term proactive monitoring should also be considered, recognising that unfavourable consumer outcomes can arise well after benefits and campaigns periods have concluded. Questions for insurers

• Do your reviews of distribution methods consider intermediary incentive arrangements and
  whether they could influence behaviour in a manner that is inconsistent with fair consumer outcomes?
• When do you monitor consumer outcomes? Do you use proactive and outcomes-focused
  metrics?
• If you identify consumer outcomes during a benefit or campaign period that are inconsistent
  with fair treatment, how will you take prompt and effective corrective and/or remedial action, including ensuring your PPSCs effectively manage that risk, or stopping or withdrawing the benefit or campaign where necessary?
• How does the board gain assurance that incentives, including benefits and campaigns, are
  designed and managed to mitigate or avoid adverse effects on consumers’ interests? Next steps Insurers should be able to demonstrate that their PPSCs in relation to their fair conduct programme for managing incentives are effective in practice. Insurers should not assume that monitoring, governance processes or planned remediation will be sufficient where the arrangement itself would not satisfy the FCP minimum requirements. We will actively test insurers’ arrangements through our supervisory and monitoring activities under the CoFI regime. Where we identify weaknesses, we will expect insurers to address them promptly, including by changing or stopping benefits and campaigns that are inconsistent with the fair conduct principle or that expose consumers to unfair outcomes. How we may respond Where an insurer does not comply with its obligations under the CoFI regime, the FMA may take regulatory action. This might occur where there are material weaknesses in the FCP, failures by the insurer to follow its own PPSCs, the insurer continues to offer benefits or campaigns that don’t align with its PPSCs, or breaches of incentives regulations. Depending on the nature and seriousness of the breach, our response may include direction orders, such as requiring the insurer to undertake remedial actions or directing improvements to governance or conduct controls. It may also include adding or varying licence conditions, or pursuing civil action. This is set out in our Enforcement Policy13 . 13 Enforcement Policy