Remuneration built around sales targets will be prohibited as part of the New Zealand Government’s plans for a new financial services sector-wide conduct regime to improve consumer outcomes.

And insurers selling add-ons such as travel insurance through intermediaries that are not financial advice providers will be made accountable for any conduct breaches.

Commissions for general insurance products are usually set at 10-30% of annual premiums, according to the Government.

Commerce and Consumer Affairs Minister Kris Faafoi plans to introduce the new legislation for the conduct regime to Parliament by the end of the year.

“Under this new regime we are aiming to ban things like target-based sales incentives, which put profits ahead of people,” Mr Faafoi said today as he announced the impending changes.

“Incentives such as overseas trips or bonuses for selling a certain amount of insurance policies can lead to sales staff pressuring customers into buying unsuitable products, like policies they can never claim on.

“Removing these types of incentives will provide better protections for consumers from misconduct.

“New Zealanders need to be confident that the financial advice, products and services they are buying will be appropriate to their circumstances and meet their needs.”

Strong penalties are in store for financial institutions who breach obligations governed by the new regime. The Financial Markets Authority (FMA) will have an expanded remit to oversee the regime.

The FMA has welcomed the initiatives, as has the Insurance Council of New Zealand (ICNZ).

“The changes come at a time when it’s clear some parts of the financial services sector are not meeting the conduct standards expected,” ICNZ CEO Tim Grafton said.

“General insurers support legislative changes to achieve this and are looking forward to seeing the detail of the legislation when it is released.

“We also welcome the news that sales incentives based on volume- or value targets will be prohibited, especially as they apply to insurance brokers.

“Legislation in this area will address the first-mover disadvantage insurers struggle with and in removing these incentives help customers have confidence that both the sales and underwriting teams behind their policies have their needs front of mind.”