Insurers Expected to be Actively Preparing Now for Major Reforms

The FMA has issued an open letter to insurers setting out its expectations in relation to the implementation of the Contracts of Insurance Act which is scheduled to come into effect in November 2027.

In the letter to insurers, the FMA’s Executive Director – Licensing and Conduct Supervision, Clare Bolingford, says the Act, which represents a significant reform of New Zealand’s insurance contract law, “…is intended to ensure insurance markets operate fairly and transparently, supporting consumer confidence and trust.”

In noting the FMA expects insurers to be actively preparing now for the implementation of the Act, Bolingford says this includes:

• Undertaking gap and impact assessments
• Understanding how existing practices align with CoIA requirements
• Identifying areas where changes or redesign will be required
• Embedding CoIA considerations into governance, risk management, and assurance frameworks

She says early preparation is crucial in managing delivery risk and supporting effective implementation.

…The core purpose of CoIA is to rebalance the relationship between insurers and policyholders…

Bolingford explains in the letter that the core purpose of CoIA is to rebalance the relationship between insurers and policyholders by improving the fairness of contract terms and insurer practices while enabling individuals and businesses to manage risk effectively.

“CoIA is distinct from, but complementary to, other conduct and market regulation. It focuses primarily on the fairness of contract terms and on the conduct of insurers in their direct dealings with individual policyholders, including how underwriting questions are asked, how disclosure is assessed, and how remedies are applied.” (See: Contracts of Insurance Bill Passes Third Reading).

The letter says that CoIA reforms disclosure obligations for policyholders by moving away from broad and often ambiguous disclosure requirements.

…These reforms are intended to reduce outcomes that may be perceived as technical or harsh…

“Instead, consumers are required to take reasonable care not to make a misrepresentation. This approach is intended to provide greater clarity for consumers and to ensure expectations are clearer and more practical.”

CoIA also introduces proportionate remedies. “Insurer responses to non‑disclosure or misrepresentation must be fair and appropriately aligned with the nature and impact of the breach. These reforms are intended to reduce outcomes that may be perceived as technical or harsh, while supporting a balanced approach between insurer and policyholder interests,” Bolingford says.

As to preparations insurers should be making, Bolingford says the FMA acknowledges that some insurers are awaiting final regulations.

…We do not consider it appropriate to delay implementation planning until regulations are finalised…

“However, we do not consider it appropriate to delay implementation planning until regulations are finalised.

“The regulations represent a small component of the reforms and consultation undertaken to date provides a sufficient basis for insurers to progress extensive implementation work. Delaying preparation increases the risk of compressed timeframes, incomplete implementation, and avoidable compliance and conduct risks.”

Bolingford says the FMA expects insurers to demonstrate clear ownership of CoIA implementation, proactive planning, and tangible progress well in advance of commencement.

“We will be looking for evidence that CoIA requirements are being embedded into business practices in a way that delivers fair outcomes for policyholders and aligns with the intent of the reforms.”

It also expects that CoIA requirements be fully understood and effectively operationalised across relevant business practices including:

• Product design
• Sales
• Underwriting
• Policy administration
• Claims handling

“Insurers should ensure that CoIA implementation is not approached in isolation and should align with broader fair conduct obligations so that consumers are treated fairly throughout the insurance lifecycle.”

…insurers should also take a proactive approach to communicating changes to consumers…

She notes insurers should also take a proactive approach to communicating changes to consumers. “This includes considering whether additional or early communication is needed to ensure consumers are aware of, and can reasonably understand, changes to their obligations and, where relevant, their cover.”

“Communication should be timely, clear, concise, and effective, particularly where changes may impact consumer understanding or outcomes. Consumers should be given a reasonable opportunity to engage with their insurer and understand those changes.”

Click here to read the full letter.