Regulatory and ethical framework for life, disability and health insurance
This domain tests how life, disability and health advice is licensed, supervised and conducted in New Zealand, and what an adviser must do when a commission, an insurer target and a client's interests pull in different directions.
The licensing structure
- The Financial Markets Conduct Act 2013, as amended by the Financial Services Legislation Amendment Act 2019, requires anyone giving regulated financial advice to operate under a Financial Advice Provider (FAP) licence issued by the FMA. Individuals act as financial advisers or as nominated representatives of that FAP.
- Advisers must meet the competence standard for life and health advice - the New Zealand Certificate in Financial Services (Level 5) - and work within the FAP's systems, records and supervision of nominated representatives.
The Code of Professional Conduct
Issued by the FMA and in force since March 2021, the Code sets standards covering ethical behaviour, conduct, client care and competence. The conduct standard requires advisers to prioritise the client's interests and manage conflicts. Client care requires understanding the client's situation and keeping records that show the reasoning behind the advice.
Other rules that bite
- Human Rights Act 1993: insurers may treat people differently on actuarial or statistical grounds (age, health, disability), but only with supporting data.
- Privacy Act 2020 and the Health Information Privacy Code 2020 govern medical evidence.
- AML/CFT Act 2009 obligations cover client identity and source of funds.
- Membership of an approved dispute resolution scheme is compulsory.
Worked example
A client asks for trauma cover. One insurer pays 40% more commission. Recommending it because of the commission breaches the conduct standard even if the product is adequate. The defensible path is to disclose the commission, compare definitions and exclusions against the client's stated needs, and record why the chosen policy won.
Traps
Assuming a FAP licence authorises every product type; treating disclosure as a one-off event rather than ongoing; confusing product sales with financial advice; and forgetting that the Human Rights Act insurance exception needs evidence, not assumption.