Report
Once your policy is two years old, replacing it pays your adviser all over again
Source: FMA, FMA sets out regulatory priorities for 2026/27 (MR No. 2026-31)
The Financial Markets Authority has named the way insurance advisers get paid as one of four things it will chase this year. Its own data found policies were 1.6 times more likely to be replaced once the two year clawback window closed, and how good the product was barely came into it.
By Henry Smith · Regulation · 2026-06-30
What this means for you If you hold life, health or income protection cover arranged by an adviser, nothing about that cover changes, but the way your adviser is paid is now one of four things the Financial Markets Authority, the regulator for financial advice, says it will examine this year. Under the pay structure the regulator says is most common here, writing a new policy pays an adviser roughly thirty times what a year of looking after an existing one pays, and the regulator's own data found policies on that structure were 1.6 times more likely to be replaced once the two year clawback period ended, which is the window in which an adviser has to repay part of the sale payment if a policy is cancelled early. The rules already require an adviser's firm to tell you the actual commission, when it is paid, who receives it and what they do to manage the conflict.
Your life insurance policy passes its second birthday, and something changes that has nothing to do with your cover. Until that point, if the policy is cancelled, the adviser who sold it has to repay part of what they were paid for selling it, a rule called clawback. After it, they do not. They can also write you a replacement policy and be paid the full sale commission a second time.
The Financial Markets Authority, or FMA, the government body that oversees financial advice in New Zealand, has measured what happens next. Policies that paid the adviser a large sum on sale and a small amount each year afterwards were 1.6 times more likely to be replaced once that two year window closed. How good the product actually was turned out to be "only a minor factor" in whether it got replaced (FMA, Replacing life insurance, who benefits?, page 13, June 2016).
So what does this mean for me?
If you hold life, health or income protection cover arranged by an adviser, nothing about the cover itself has changed. What sits behind the two year mark is the size of the gap between the two ways an adviser is paid. Under the pay structure the FMA says is most common in New Zealand, writing a new policy pays roughly thirty times what a year of looking after an existing one pays (the same report, page 11). Same client, same premium, two very different payments.
That does not make replacement wrong. Cover sometimes should be replaced, and plenty of advisers keep clients for decades. It does mean that when a switch is put in front of you, the money behind it is not neutral.
Why is the FMA looking at this now?
On 30 June 2026 the FMA named the conflicts created by the way advisers get paid as one of four priorities for the year ahead, alongside product design, complaints handling and fraud (FMA, MR No. 2026-31). The pay theme covers lending and financial advice; insurance advisers sit in the second.
There it says it will look at whether firms have real controls over the conflicts commissions create, and whether they can "detect and deter misconduct that may be incentivised by commission-based relationships". It says it is aware of "high upfront commissions for financial advice across life, health and disability insurance products" that increase the risk of consumer harm (FMA, Financial Conduct Report 2026/27).
Findings from its monitoring last year sit behind that focus.
- Firms were inconsistent about telling customers the actual commission payable, both to the firm and to the individual adviser, and inconsistent about clawbacks.
- Advisers missed signs that a customer was vulnerable, for example unwell, elderly or under money pressure, which the FMA links to "the sale of unsuitable products and inappropriate replacement business driven by commission incentives".
How does your adviser get paid?
Money reaches an adviser on a life or health policy in four ways: a lump sum when the policy is sold, called upfront commission; a smaller payment every year it stays active, called trail; extra money for hitting a target; and non-cash benefits such as a paid trip, which we covered separately.
Those combine into three pay structures. The FMA publishes the percentages for each but has never set them side by side, so we have, in the only unit that works for every policy: multiples of your own premium.
| Structure | Paid on sale, % of first-year premium | Paid each year after, % of premium | Years of loyalty to equal one sale |
|---|---|---|---|
| Upfront (most common) | up to 200% | 5% to 7% | 29 to 40 |
| Hybrid | up to 150% | 10% to 12% | 13 to 15 |
| Level | roughly equal to the yearly payment | roughly equal to the sale payment | about 1 |
Percentage ranges from the same 2016 report (FMA, page 11). The final column is our arithmetic: the sale percentage divided by the yearly percentage. It holds whatever your premium is.
The same report names the upfront structure as the most common one here, and a later FMA and Reserve Bank review found sale payments commonly running between 170% and 210% of a first year's premium, meaning what you pay in your first twelve months (FMA and RBNZ, Life Insurer Conduct and Culture, page 18, January 2019). So one new policy pays about what looking after an existing one pays over 29 to 40 years, most of a working life in a single payment.
The clawback, in that same 2016 report, usually runs two years. In month 25 the adviser owes the insurer nothing and can sell that same client a fresh policy at the full upfront rate, the machinery behind the figure at the top of this page. The 1.6 is the FMA's. The link between it and the ratio in our table is ours.
Why did the 2025 rules not fix this?
New rules took effect on 31 March 2025 and ban incentives tied to a sales target: the regulations outlaw a $1,000 bonus for selling at least 100 life policies in three months. In the same place they permit a commission set as a fixed percentage of the first year's premium, paid one policy at a time, with no target attached (Financial Markets Conduct Regulations 2014, regulation 237E).
That second example is the structure this article is about. The ban removed volume bonuses and sales tiers and left the large upfront percentage exactly where it was. Which is why the FMA has named it something to watch rather than something to prosecute: the payment is legal, and the open question is whether firms manage the conflict it creates.
What can you ask your adviser?
Naming it a priority gives you no new rights. The right you already have is more specific than most people realise: once your adviser knows roughly what advice you are after, their firm has to tell you, for every commission involved, when it gets paid, who pays it and who receives it, how much it is or how it is worked out, and what they do to manage the conflict (the same regulations, Schedule 21A clauses 5(2)(d) and 6(2)(d)).
Three questions follow, from that wording and from the gaps the FMA found.
- What is the commission as a percentage of my first year's premium, and what is it in each year after that? The regulator found firms inconsistent on the actual amount, so a line like "we receive commission from insurers" is not what the rules ask for.
- How long does the clawback period run, and would I be charged for it if I cancel inside that window? Clawback disclosure was another patchy area.
- If I am being told to replace cover I already hold, what commission is payable on the new policy, and what happens to the commission on the old one?
That is the whole of the practical takeaway. Nothing about your policy needs to change because of a regulator's priority list. But the industry earns far more from movement than from continuity, the pressure is sharpest just after your policy's second birthday, and the protection the rules give you is a number you have to ask for.
What could we not check?
The FMA does not publish current commission rates. Every percentage here comes from reports published in 2016 and 2019, both predating the 2025 incentive rules. Rates today may well be lower. We could not find a published source that says so, and we are not going to invent one.
We have deliberately kept dollar figures out. What you pay depends on your age, health and cover, so no worked example would describe your policy, and the Financial Services Council, the industry body for insurers, does not publish an average premium per type of cover.
The last column of the table assumes your premium never changes, and on a stepped policy it climbs as you get older. It also ignores that yearly payments keep coming while the sale payment lands once. It compares first year cashflows, and that is all it claims to do.
The Financial Conduct Report sets priorities. It does not accuse any adviser or firm of breaking anything, and neither do we. We read the public documents. We were not briefed and we spoke to nobody.
QuoteHub is operated by Craig Smith Business Services Limited, trading as Smiths Insurance and KiwiSaver, a licensed Financial Advice Provider (FSP712931). We are paid by commission from insurers, on the same basis described above. Our arrangements are set out on our disclosure page.
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.
- FMA, FMA sets out regulatory priorities for 2026/27, MR No. 2026-31
- FMA, Financial Conduct Report 2026/27
- FMA, Replacing life insurance, who benefits?
- FMA and RBNZ, Life Insurer Conduct and Culture
- Financial Markets Conduct Regulations 2014
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