NZ CFS L5 General Insurance common mistakes
NZ CFS L5 General Insurance · Understand the traps and how to avoid them.
In scenario questions, states that a nominated representative can give regulated financial advice in their own right, without naming the licensed financial advice provider (FAP) they operate under.
Candidates memorise adviser titles as separate licence types rather than as roles inside one licensing structure, so the FMCA requirement that advice be given on behalf of a licensed FAP is never triggered in their answer.
What to do instead
Anchor every answer on the FAP: the FAP holds the licence and carries the record-keeping, disclosure and conduct obligations; the financial adviser or nominated representative gives advice on its behalf. When asked 'who is responsible', separate the FAP's accountability from the individual's conduct.
Treats disclosure of fees and commissions, and telling the client about the free dispute resolution scheme, as good practice rather than as mandatory initial disclosure.
The Code of Professional Conduct standards read like ethics, so candidates file disclosure under 'soft skills' and forget that the FMCA disclosure regulations create hard obligations with specific content.
What to do instead
Use a fixed initial-disclosure checklist: nature and scope of the advice, fees and how the adviser is paid, commissions and conflicts, the duties owed to the client, and the client's right to complain to the dispute resolution scheme (IFSO for general insurance). Say when ongoing disclosure is triggered.
When a client holds two policies covering the same loss, tells them they can claim the full amount from both insurers and keep both payments.
Indemnity is recalled as 'the insurer pays the sum insured' rather than 'the insured is restored to their pre-loss position', so the contribution principle is never applied to the double-insurance scenario.
What to do instead
State the indemnity principle first, then apply it: the client gets one recovery, with insurers contributing rateably, or one insurer paying and subrogating. Remind the client of the duty to disclose other insurance and check both policies' 'other insurance' clauses.
Answers that after an earthquake Toka Tū Ake (the Natural Hazards Commission, formerly EQC) meets the entire rebuild cost, making the private house policy irrelevant.
EQC is remembered from older material as the primary earthquake insurer, and the statutory scheme plus the private top-up layer is not learned as one two-tier structure.
What to do instead
Describe the structure: the statutory scheme covers residential buildings up to the statutory cap, plus limited contents and residential land; the private policy responds above the cap and for items outside the scheme. Then check the policy's natural hazards wording and excess before advising.
Recommends public liability cover to pay for an employee's accidental injury on the client's premises, or says an employers liability policy will respond.
The liability family is learned as a list of product names, so the ACC personal-injury bar, which removes most workplace injury claims from the tort system, is not applied to the scenario.
What to do instead
Link each cover to what it actually pays: public liability for third-party injury or property damage outside ACC; statutory liability for defence costs and reparation, noting HSWA fines cannot be insured; ACC for the employee's injury. State the gap the client actually has.
In the advice-process question, the candidate recommends a product in the first paragraph and then writes a fact-find to justify it.
Product knowledge is stronger than process knowledge, and the scenario points to an obvious 'right' product, so the candidate works backwards from the answer instead of following the sequence.
What to do instead
Force the order every time: scope and objectives, information gathering (needs, financial position, priorities, risk tolerance), needs analysis, options compared, recommendation, rationale recorded. Write the record-of-advice reasoning before naming any product.
Recommends replacing a client's existing policy without comparing the existing terms, exclusions and cost, and without recording why replacement is in the client's interest.
Replacement is treated as a price comparison, and candidates assume 'cheaper premium' automatically satisfies the suitability standard.
What to do instead
Treat replacement as a documented comparison: existing cover and exclusions versus proposed, premium over time, new gaps, and the client's confirmed reasons. If the comparison does not support replacement, say so and recommend retaining the existing policy.
States the insurer can avoid the policy for any fact the client did not volunteer, without checking whether the insurer asked a clear question and whether the fact was material to the risk.
Duty of disclosure is memorised as 'tell the insurer everything', ignoring the materiality test and the effect of the insurer's own proposal questions on what the client was required to answer.
What to do instead
Apply the two-part test: was the fact material to a prudent insurer's decision, and was the question clear and specific? Then state what remedy follows. Where the insurer failed to ask, explain the limits on avoidance and note what the client should still disclose.
Advises the client to admit fault at the scene, negotiate directly with the third party, and notify the insurer only once the amount has been agreed.
The client's practical instincts (sort it out, be reasonable) are repeated as good service, and the policy's claims conditions and the insurer's control of negotiations are not applied.
What to do instead
Set out the client's duties on notification: notify promptly, do not admit liability or settle without the insurer's consent, mitigate further loss, preserve damaged property and evidence, and cooperate with the assessor. Then explain the excess, the assessor's role and how the insurer handles recovery from the third party.
Uses 'broker', 'adviser' and 'agent' interchangeably and cannot say who acts for the client, who acts for the insurer, and where the FAP sits in the relationship.
Distribution channels are learned as marketing labels rather than as legal relationships with different mandates, duties and disclosure requirements.
What to do instead
Draw the triangle of insurer, intermediary and client, and mark who holds the mandate, who pays whom, and who owes the FMCA advice duties. For each channel, state what disclosure the client must receive, including commission and any conflict, before advice is given.