Regulator letter

An honest mistake can still cost you the whole policy, and the 2027 fix arrives one renewal at a time

Source: FMA, Letter to insurers outlining expectations regarding the Contracts of Insurance Act

A man who died of colon cancer at 31 had his family's life claim cut in half over a colonoscopy he had as a teenager, and the insurer could lawfully have paid nothing at all. From 15 November 2027 the Contracts of Insurance Act makes the proportionate outcome compulsory. The catch is that each policy only reaches the new rules when it is new, renewed or changed after that date.

By Henry Smith · Regulation · 2026-05-18

What this means for you From 15 November 2027 an insurer can no longer cancel a consumer policy from day one over an honest mistake, because the response has to fit the error. On life cover, cancellation is off the table entirely once a careless answer is more than three years old. Each policy reaches the new rules at its first new contract, renewal or change after that date, and the old, harsher rules apply until it gets there.

Written by Henry Smith · Reviewed by Smiths Insurance & KiwiSaver, licensed Financial Advice Provider (FSP712931)

A New Zealand man died of colon cancer at 31. When his family claimed on his life cover, the insurer found his application had left out a colonoscopy he had as a teenager and an anaemia diagnosis he barely remembered. Under the law as it stands, that was enough to cancel the policy back to day one and pay nothing. The insurer chose not to. It paid half the benefit, matching the smaller cover it would have offered had it known (IFSO information sheet, Non-disclosure, 2024).

That half payment was a choice. From 15 November 2027 it becomes the floor the law requires, and unwinding a whole policy over an honest slip stops being available at all (Contracts of Insurance Act 2024, Sch 2 cl 5).

Then comes the part that decides whether it reaches you. The new rules attach to a policy only when it is new, renewed or changed on or after that date, so cover that renews yearly crosses over quickly, while a life policy that simply runs on untouched can keep the old law attached to answers you gave years ago.

Why could an insurer do that?

The rule is the duty of disclosure: an obligation to volunteer anything an insurer might consider relevant, whether or not you were asked about it. The remedy against a breach is called avoidance, and it treats the policy as if it never existed. The Insurance & Financial Services Ombudsman Scheme (IFSO), the free service that referees disputes between insurers and their customers, says the law behind it "is very harsh and does not distinguish between innocent and deliberate non-disclosure" (the same IFSO sheet).

Its replacement, the Contracts of Insurance Act 2024, received Royal assent on 15 November 2024, and section 2 of the same Act starts any part not switched on earlier automatically on the third anniversary of that day. The Financial Markets Authority, which polices how financial firms treat their customers, confirmed the date in a letter to insurers: the Act "comes into effect on 15 November 2027" (FMA, 18 May 2026). Count from 20 August 2026 and the duty of disclosure has 452 days left, on QuoteHub arithmetic from those two dates.

What replaces it?

Under section 13 of the same Act you must take reasonable care not to make a misrepresentation. Answer the questions honestly and carefully and you have done your job. Section 59 wipes out the disclosure duties that came before it.

From there the tests stack in your favour. The insurer gets a remedy only if it proves your mistake changed the deal it would have offered (section 23), and if it accuses you of lying, it has to prove that too (section 26). The response then has to fit the error, on a sliding scale at the back of the Act.

Situation at claim time	Today, under the duty of disclosure	From 15 November 2027
Careless but honest answer, and the insurer would have added extra terms	Policy cancelled back to day one	Policy stands on those terms, with a higher premium or the claim cut in proportion, not cancellation (cl 5)
Careless answer, and the insurer would not have covered you at all	Policy cancelled back to day one	Cancellation allowed, but your premiums come back (cl 4)
Careless answer on a life policy, more than 3 years before the death or the cancellation	Cancellation available however old the answer is	No cancellation. The insurer may only adjust the policy to where it would have stood (cl 4(2))
You lied, or did not care whether the answer was true	Policy cancelled	Policy cancelled, claim refused, premiums kept (cl 2)

Left column as described in IFSO's non-disclosure information sheet (2024); right column from Schedule 2 of the Act, clauses 2 to 5, marked on each row.

The third row has had almost no consumer coverage, and it is the strongest protection in the Act. Once a careless answer on a life policy is more than three years old, cancellation is gone entirely. The outcome families fear most in a life claim comes with an expiry date.

None of this protects dishonesty. A deliberate lie always fails the reasonable care standard (section 13(3)), and where the insurer asked a clear, specific question, the law assumes you knew the answer mattered (section 26(2)).

So what does this mean for me?

Three things, at the level of cohorts rather than any one policy.

If you are applying now, applications signed between today and November 2027 are the last group judged wholly under the old duty, and on life cover those answers can follow the policy for years. That is a reason to take more care over the health questionnaire, not less. Our claims readiness tool sets out what an insurer can test at claim time.

If you hold health insurance or other annually renewing cover, you reach the new rules at your first renewal after the start date, which for most people falls within a year of it.

If you hold life insurance you have not touched in years, nothing changes until the policy is rewritten, replaced or altered by agreement. Schedule 1 of the same Act, clause 1, applies the new duties to contracts entered into on or after the start date, expressly including renewals. This reform is not a retrospective clean slate.

And nothing changes at a claim made before the start date. The old rules run right up to it.

How many people does this touch?

IFSO accepted a record 600 disputes in 2024-25, and 96% of them were about insurance. The caseload is up 25% on the previous year and 110% on 2022, and non-disclosure, meaning something left out of an application, ranks third among the issues behind those disputes (IFSO Scheme Annual Report 2025).

IFSO publishes no non-disclosure count, but it does publish disputes by product, and the products with detailed health questions are exactly where cancellation does its damage.

Product	IFSO disputes, 2024-25
Health insurance	89
Life insurance	27
Income protection	27
Trauma	25
Total	168

All product counts from the IFSO Scheme Annual Report 2025.

Those 168 disputes are 28% of the record 600, and all of them sit in the products the reform reaches.

What has the regulator told insurers?

The FMA's letter is signed by Clare Bolingford, its Executive Director of Licensing and Conduct Supervision. She calls the Act "a significant reform" and is blunt on timing: "we expect insurers to be actively preparing now. This includes undertaking gap and impact assessments", the formal stocktakes of what a firm must change. Insurers holding off until the supporting regulations land are told not to, because those regulations "represent a small component of the reforms" and delay risks "compressed timeframes, incomplete implementation" and conduct failures, all in the same letter.

The letter landed almost exactly halfway between assent and commencement, and a regulator saying at halfway that preparation should already be visible is telling part of the market that it is not.

For anyone holding cover the practical read is narrow but real: the protection is coming, it arrives policy by policy rather than all at once, and the answers you give in the meantime are the ones still judged under the old rule.

What can this article not tell you?

15 November 2027 is the latest possible start date, not a fixed one. Section 2 lets the government start parts of the Act earlier by Order in Council, a government order that brings a law into force without going back to Parliament. We found none as of 20 August 2026, so the deadline can only move closer.

Our 168-dispute figure is an outer boundary, not a count of claims declined for non-disclosure: it is the whole dispute book in the health-questionnaire products. Some of those disputes are about what a policy covers, and some non-disclosure disputes sit in travel insurance, which we left out. FSCL, the other large disputes scheme, publishes no comparable breakdown we could verify.

The letter says nothing about how many insurers are behind. That is our inference from its warning against waiting for regulations it calls a small component of the reforms. No readiness survey has been published.

The FMA's page blocked our standard fetching tools, so we read it by direct request on 20 August 2026. It carries "Page last updated: 18 May 2026" rather than a publication date, so we date the letter to that day.

What this means for your cover

What a policy pays, how to size it, and how a rule change reaches an existing policy. Life insurance in New Zealand

Sources

Every source below was read and checked on 21 August 2026.

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Explore related pages: Life Insurance, Income Protection, Health Insurance, Trauma Insurance, For Brokers.