161 million reasons to treat customers fairly

“AIA to pay $700,000 penalty for false and misleading representations to customers”, “Cigna to pay $3.5 million” and “ANZ ordered to pay $280,000” are just some of the headlines in recent years that highlight how some financial institutions have misled customers.

As a result of these errors, new legislation was introduced to ensure banks and insurers treat customers fairly. The Conduct of Financial Institutions Act (CoFI) regime starts in March 2025.

Scrapping this legislation would be a win for banks and insurers, and a loss for New Zealanders.

What is CoFI?

National Party MP and spokesperson for commerce and consumer affairs, Andrew Bayly, said the party will “cut financial red tape” and “burdens on lenders” by repealing CoFI.

You could be forgiven for not knowing what CoFI is, but it’s important for anyone who has a bank account or an insurance policy.

Basically, the legislation ensures financial institutions treat customers fairly.

CoFI was brought in after a joint review by the Financial Markets Authority (FMA) and the Reserve Bank on the “conduct and culture of banks and life insurers” (in 2018 and 2019). The FMA also did a separate review into fire and general insurers, such as house and contents insurance providers (in 2021).

The reviews found several weaknesses in banks and insurers’ systems, which disadvantaged consumers.

What the FMA and Reserve Bank reviews found

The 2019 review into life insurance found insurers weren’t “putting in place systems and processes to ensure consumers were treated fairly”.

Since the review, life insurers have reported 225 issues to the FMA – most of which relate to “creaking systems and weak controls.” This represented “just the one-third of issues whose impacts have been fully assessed” up until September 2022.

For banking, 266 errors have been fixed since the 2018 review.

To date, more than 1.51 million customers have been impacted since the reviews of banks and insurers, and over $161.3 million has been returned to customers.

These are astonishing and concerning numbers.

Between October 2022 and June 2023, the FMA filed three more cases against life and general insurers for allegedly misleading consumers.

The issues found in the insurance and banking reviews include instances of insurers not notifying policy holders of premium increases properly, selling credit insurance to people who were ineligible to claim on it, and not applying annual inflation correctly. Other issues included people still being charged for old policies when they had switched to new ones.

One insurer only helped customers who complained about high premiums for funeral insurance policies. This created a ‘two-tier’ premium scale between those who complained and those who didn’t.

The FMA and Reserve Bank also reported that some banks relied solely on complaints to identify issues, yet their systems for monitoring complaints “had serious weaknesses.” Issues customers complained about were largely due to “underinvestment in systems, and reliance of manual processes” to compensate for the old systems.

For both life insurers and banks, the regulators found the role of incentives problematic. A customer should be sold a product because it suits their purposes, not because the salesperson earns the most commission off it.

CoFI needs to stay

Customers need to be treated fairly and sold the right products for their purposes.

The FMA’s Clare Bolingford spoke to the Financial Services Council Conference – a day before the National Party’s announcement to scrap CoFI. She said the FMA’s investigations after the bank and insurer reviews showed, “frankly, a sloppy and careless approach to customers”.

CoFI is a vital tool to ensure New Zealanders get good customer service.

It also means we’re keeping up with other countries who have already have tools in place to ensure a “robust, sound and fair financial system,” Bolingford said.

If CoFI is scraped, customers are likely to continue to bear the brunt of financial institutions’ mistakes.