Review

Some insurance sold across a counter pays back 3 cents in the dollar

Source: FMA, Add on insurance review highlights insurers' responsibility to deliver fair outcomes (MR No. 2026-35)

The FMA found certain add-on policies return 3 to 6 cents in claims for every premium dollar, and named loose oversight of the people selling them as the weak point. The same commission-paid model sells most life and health cover in New Zealand.

By Henry Smith · Regulation · 2026-08-20

What this means for you If you hold cover sold alongside a car or a loan, such as mechanical breakdown, payment protection, or gap cover that pays what your car insurer does not when a financed car is written off, your policy is one of roughly 500,000 the regulator has just told insurers to supervise far more closely, and extended warranties on appliances now fall under the same fair conduct law that applies to banks and insurers. None of this changes the cover you already hold or what it pays out. Life, trauma and income protection arranged through a bank branch, a mortgage broker or a car dealer runs on the same commission-paid sales model, and the disclosure rules already entitle you to be told who was paid for placing that cover and how much.

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

If you have ever bought insurance across a counter, at a car yard, a loan desk or a shop till, the regulator has just put a number on what some of that cover gives back. Certain add-on policies sold in New Zealand pay out 3 to 6 cents in claims for every dollar of premium collected, the Financial Markets Authority found in a review published on 20 August 2026 (FMA, Add-on insurance and extended warranties review, page 11). About 500,000 of these policies are live right now.

The FMA's sharpest criticism is not of the products. It is that insurers barely check the dealers and salespeople selling for them, and every one of those sales pays a commission. That reaches well past car yards, because most life and health cover in New Zealand is sold the same way. The FMA has already shown what incentives can do in that market. When overseas trips were on offer for hitting sales targets, life policies old enough that the adviser no longer had to repay any commission were 2.2 times more likely to be replaced with a new policy (FMA, Replacing life insurance, who benefits?, page 13).

What the FMA found

Add-on insurance is cover offered alongside something else you are buying. The review looked at four kinds:

Mechanical breakdown insurance, which pays for car repairs once the manufacturer's warranty runs out.
Guaranteed asset protection, or GAP cover. If your car is written off, this pays the difference between what your car insurer hands over and what you still owe the finance company.
Consumer credit insurance and payment protection insurance, which cover your loan repayments if you lose your job or cannot work.
Extended warranties on appliances and other household goods.

Nine insurers in New Zealand stand behind these products. The FMA reviewed seven of them, including all of the larger providers (the same review, pages 5 and 6). Going by the customer numbers insurers reported themselves, it estimates about 500,000 of these policies are in force.

Payout rates on GAP, consumer credit and payment protection cover were consistently low. Some sat below 20%. Certain products ran at 3% to 6%. Insurers call this the loss ratio, the share of premium money that comes back to customers as claims. The same report does not name the insurers or the products, or say which figure belongs to which, so the headline number is narrower than it sounds.

This is not a small corner of the market. Over the three financial years to 31 March 2020, New Zealanders bought 298,116 mechanical breakdown policies and paid $312m for them, plus $91m for consumer credit and payment protection cover (Commerce Commission, Motor vehicle financing and add-ons review, page 17, 10 November 2021).

The finding that should travel furthest is about supervision. Insurers could describe how they sign up and train the dealers and brokers who sell for them. The review found little evidence they kept checking on those sellers afterwards in a way that matched the risk. What checking there was often was not independent either. In some cases the people meant to be watching the sellers were the same people whose job was driving sales.

The review's four stated concerns compress into one sentence: people may be sold things they do not need, do not understand, or already hold, and insurers are not consistently catching it as it happens. Michael Hewes, the FMA's Director of Credit, Deposit-taking, Insurance and Advice, described "a recurring gap between the policies, processes, systems and controls insurers described and how they operated in practice" (FMA media release MR No. 2026-35).

Does this change the policy you already hold?

No. Nothing in the review alters your cover or what it pays out. Three things do follow from it.

If you hold mechanical breakdown, GAP or payment protection cover bought alongside a car or a loan, it is worth knowing whether the same protection already sits somewhere else in your affairs. The FMA saw cases where people who already held similar cover were still encouraged to buy.

If you have an extended warranty on an appliance, the FMA now takes the view that some of those arrangements count as insurance contracts. That pulls them inside the Conduct of Financial Institutions regime, known as CoFI, the law requiring banks and insurers to treat customers fairly. The same fair conduct duty now reaches the retailer's warranty desk.

And whoever sold you the cover was almost certainly paid to. That on its own is not a fault. It is the thing the FMA says insurers have not been watching closely enough.

Could the same thing be happening in life and health cover?

On the published record, no. The FMA has not said that life or health insurers are doing what it criticised in add-ons, and this piece does not say so either. What carries across is the sales machinery, which is not specific to car yards. Life, trauma and income protection is also mostly placed by third parties who are paid a commission for placing it, and the regulator's own back catalogue records what that can do.

The 2016 FMA study behind that overseas trips finding also found that how well a product scored was "only a minor factor" in whether a life policy was replaced. The type of commission on offer mattered more. A decade later, the FMA reported that firms were still inconsistent about telling clients what commission the firm and the individual adviser were actually paid, and what happens to that money if a policy is cancelled early (FMA, Financial Conduct Report 2026/27, financial advice section).

That last one has an answer available on request. Your advice firm must tell you who pays each commission, who receives it, and either the amount or how it is worked out (Financial Markets Conduct Regulations 2014, Schedule 21A clause 5(2)(d)). You are entitled to be told who was paid for placing your cover, and how much.

Scale is why this matters more than the review itself. The add-on review covers roughly 500,000 policies. The Financial Services Council, the industry body for life insurers, counts 4.00 million life covers in force at 31 March 2026 and $3.31 billion of premiums paid each year (FSC, Spotlight on Life Insurance, March 2026, published 8 June 2026). Those figures come from insurers' own returns, so read them as the industry counting itself. Even so, the sales model the FMA has just told seven insurers to fix sits under a market about eight times the size of the one it reviewed.

What can this piece not tell you?

We read the public documents. We were not briefed and we spoke to nobody. We wrote this on the day the review was published, so there is no second account to weigh against the FMA's.

The FMA does not say which products carry the 3% to 6% payout rates, or which insurers. It publishes only the low end of the range, not the full spread. It gives no equivalent figure for life or health cover, and neither the FSC nor the Reserve Bank publishes one. So the comparison above is about sales machinery and scale, not about value for money. The Commerce Commission figures are five years older than the FMA's and cover a different set of firms.

The review makes no finding about any life or health insurer. When the FMA looked at insurer incentive campaigns in June 2026, it found most insurers did have a process for managing the conflicts those incentives create, though "their approaches vary" (FMA, Insurer benefits and campaigns insights). The FMA has asked the wider sector to check whether similar issues exist in their own operations. That is the invitation this piece takes up, and no more than that.

Where that leaves you

If you hold add-on cover, the review will not tell you whether yours is one of the policies the FMA found paying back 3 cents in the dollar. What it changes is the standard the insurer behind it is now held to, and who has to watch the person who sold it.

If your life or health cover was placed by someone paid a commission, which describes most cover in New Zealand, the question raised here is not whether the product is bad. It is whether anyone checked that it fitted, and what was paid when it was placed. Both are things you are already owed an answer to.

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.

All QuoteHub insurance news

Talk to a licensed adviser about what this means for you · free, no obligation.