Consultation

The IPSA rewrite gives insurers their first civil penalties, $2.5 million a breach, half of what the same regulator can seek from a bank

Source: RBNZ, Exposure draft of the Insurance (Prudential Supervision) Amendment Bill

For the first time, the Reserve Bank could fine an insurer without taking it to criminal court. The cap is $2,500,000 each time a rule is broken, and $300,000 for an individual. For a bank, the same regulator can seek at least $5,000,000. Comments close 28 August.

By Henry Smith · Regulation · 2026-04-15

What this means for you Insurers would face court-ordered fines of up to $2,500,000 per breach from late 2028 at the earliest, instead of criminal charges that are almost never brought. Life policyholders keep their place near the front of the queue if an insurer fails, while health policyholders stay at the back with ordinary creditors. The draft also creates a power to cut the value of insurance contracts during a rescue.

The Reserve Bank's job is to make sure insurers can pay claims. Right now it has exactly one way to punish an insurer that breaks those rules: take it to criminal court. The bar is high, so it almost never happens. A draft law would give the bank a second option, a civil pecuniary penalty, which is a fine ordered by a court with no criminal conviction attached. The cap is $2,500,000 each time an insurer breaks a rule, and $300,000 for an individual (RBNZ exposure draft, new section 137K, retrieved 20 August 2026).

The odd part is the size of it. The clause is lifted almost word for word from the law covering banks, where the same regulator can seek the greater of $5,000,000 and 0.1% of the bank's total assets (New Zealand Legislation, retrieved 20 August 2026). Same regulator, same wording, half the number for insurers, and no growth with the size of the firm. You can tell the Reserve Bank what you think until 5pm on 28 August 2026 (RBNZ, retrieved 20 August 2026).

What did the Reserve Bank actually publish?

On 15 April 2026 it released a consultation paper and a 121-page draft bill, an early version put out for comment long before Parliament sees it. The law it rewrites is the Insurance (Prudential Supervision) Act 2010, which sets who may sell insurance here and how much money an insurer must hold back to pay claims. This is its first serious overhaul.

Two other changes matter. Buying control of an insurer gets harder to do quietly: today you need Reserve Bank approval at 50% of the voting rights, and the draft drops that to 25%, or to the power to appoint half the directors. The old emergency takeover process, statutory management, gives way to a resolution regime, a rescue process copied from the bank rules (RBNZ consultation paper, retrieved 20 August 2026).

The deadline has already moved once. Comments were first due on 7 July 2026, and the consultation page now gives 5pm on 28 August 2026 (RBNZ, retrieved 20 August 2026).

How big is the fine, next to a bank's?

First, this power really is new: nothing in the current insurance Act lets the Reserve Bank fine a company without a criminal conviction (New Zealand Legislation, IPSA 2010, retrieved 20 August 2026).

The other regulator got there years ago. The Financial Markets Authority polices how insurers treat customers, under the Financial Markets Conduct Act (FMCA) and the fair-conduct rules inside it known as CoFI. Breaking those duties can cost a firm the largest of three amounts: what the customer paid, three times what the firm made, or $5,000,000 (New Zealand Legislation, FMCA ss 449 and 490, retrieved 20 August 2026).

Line the two up and the priorities look strange. The regulator that polices how the policy was sold to you can go after $5 million or more. The regulator that polices whether the insurer will still be standing when you claim tops out at half that.

The bank comparison is sharper, because the draft borrows the clause and then trims it. For a bank, the maximum is the greater of $5,000,000 and 0.1% of total assets, and $1,000,000 for an individual (New Zealand Legislation, s 158, retrieved 20 August 2026). The insurer version keeps the wording, halves the starting number, cuts the figure for individuals, and deletes the part that grows the fine with the size of the firm.

That deleted part is the one that bites over time. $5,000,000 is 0.1% of $5 billion, so a bank holding more than $5 billion sees its ceiling climb as it grows. The insurer ceiling never moves. Past that point, every extra dollar of assets widens the gap.

Chart: QuoteHub comparison of the maximum fines, taken from the four laws cited in the table below, all retrieved 20 August 2026.

Who is being fined, and under which law	Who brings it	Most a company can be fined	Most a person can be fined
An insurer today, criminal charge only	Reserve Bank	$1,000,000 (New Zealand Legislation, retrieved 20 August 2026)	$200,000 or 3 months' imprisonment (same source)
An insurer under the draft, court fine, no conviction	Reserve Bank	$2,500,000 (RBNZ exposure draft, s 137K, retrieved 20 August 2026)	$300,000 (same source)
Any financial firm treating customers badly, FMCA and its CoFI conduct duties	Financial Markets Authority	Greatest of what the customer paid, 3x the gain, $5,000,000 (New Zealand Legislation, s 490, retrieved 20 August 2026)	$1,000,000 (same source)
A bank or other deposit taker, Deposit Takers Act 2023	Reserve Bank	Greater of $5,000,000 and 0.1% of total assets (New Zealand Legislation, s 158, retrieved 20 August 2026)	$1,000,000 (same source)

Criminal fines rise too. Running an insurance business here without a licence currently costs a company at most $1,000,000 (New Zealand Legislation, IPSA s 15, retrieved 20 August 2026). The draft takes that to $2,500,000, and the longest prison term for an individual goes from 3 months to 18 (RBNZ exposure draft, clause 10, retrieved 20 August 2026).

A bank caught doing the same thing faces $5,000,000 and up to 2 years (New Zealand Legislation, DTA s 11, retrieved 20 August 2026). Double the insurer fine, again.

Every other criminal offence falls into one of three bands.

How serious the offence is	Most a company can be fined	Most a person can be fined
Lowest band	$250,000 (RBNZ consultation paper, 15 April 2026, retrieved 20 August 2026)	$30,000 (same source)
Middle band	$1,500,000 (same source)	$100,000, or 9 months in prison (same source)
Serious offences	$2,500,000 (same source)	$300,000, or 18 months in prison, or both (same source)

If my insurer failed, where would I stand?

That depends on what you bought, and the draft does not change it.

Some countries put policyholders at the front of the queue by law. That is called policyholder preference, and New Zealand has never had it. The term shows up in the draft only in an old section making an overseas insurer warn you that its home country prefers its own policyholders (RBNZ exposure draft, clause 32, retrieved 20 August 2026). The draft creates no New Zealand version.

Life insurance is the better place to be. A life insurer has to keep a statutory fund, a walled-off pot of assets that can only back its life policies. If the insurer is wound up and sold off, that pot pays life policy claims before the fund's other creditors get anything, once the liquidator has taken its costs (New Zealand Legislation, IPSA s 116, retrieved 20 August 2026). The protection stops at the edge of the pot. If the pot is short, so are you.

Health insurance, and general cover like house and car, has no such pot. Your claim is an ordinary debt, ranked alongside every supplier and contractor the company owes (New Zealand Legislation, Companies Act ss 312 and 313, retrieved 20 August 2026). If the money runs short, everyone in that group takes the same cents in the dollar, behind secured lenders and a short list of favoured claims.

Could the Reserve Bank cut the value of my policy?

Under one part of the draft, yes.

The rescue process starts out looking good for policyholders. Its first stated purpose is to protect their interests, and the Reserve Bank could step in where a failure would cause significant harm to a significant number of policyholders (RBNZ consultation paper, retrieved 20 August 2026).

Then comes Schedule 2. The Reserve Bank's own costs of running the rescue get paid ahead of all other claims (clause 51). It can also decide what every insurance contract is worth (clause 54). And the Governor-General, acting on the government's advice, can sign off a cut to the value of insurance contracts with no vote in Parliament (clause 55) (RBNZ exposure draft, retrieved 20 August 2026). Clause 55 is a haircut on your policy, and we could not find anything in the draft promising you compensation for it.

Does anything change on my policy?

Not at your next renewal, and not for a while. The Reserve Bank expects the new rules to start in late 2028, with the detailed money rules phased in after that (RBNZ consultation paper, retrieved 20 August 2026).

What would change is how often the regulator acts. A regulator whose only weapon is criminal prosecution tends to use it almost never. Give it a fine it can ask a court for, and it steps in earlier. That is the case for the power, and why the size of it matters.

What you can check today is your insurer's financial strength rating, the grade an outside agency gives it for its ability to pay claims. Every licensed insurer publishes one. Our financial strength tool puts them side by side.

Want a say? The window shuts at 5pm on 28 August 2026, and submissions go to [email protected] (RBNZ, retrieved 20 August 2026). Question 14 of the paper asks whether the rescue rules need adjusting for life insurers' walled-off funds. That is exactly where the power to cut policy values meets the life policyholder's place in the queue.

What we could not check

This is a draft, not a bill before Parliament. The section explaining the government's thinking is still marked "[To come]", clause numbers can move, and late 2028 is an expectation rather than a rule. The extension from 7 July 2026 to 28 August 2026 appears on the consultation page itself, and we found no separately dated notice of it.

We compared maximum fines only. A ceiling says nothing about what a court would order, or how often either regulator acts. We did not read the Cabinet papers or the regulatory impact statement, so we cannot say why insurers were left off the size-scaling clause, only that they were.

Proving a gap is hard. We searched the draft for compensation wording attached to the clause 55 haircut power and found none, though a safeguard could still be added at this stage. All laws were read in their current versions on legislation.govt.nz, and the Reserve Bank documents on the consultation site, on 20 August 2026.

Sources

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