Consumer NZ has called for widespread reform of the entire New Zealand insurance sector after a high level report pointed to conduct and culture problems in life insurance.

The Financial Markets Authority (FMA) and the Reserve Bank has released a report into the New Zealand life insurance industry, which said the sector needed to clean up its act as it was "not sufficiently focused" on meeting customer needs.

The report, which covered 16 New Zealand life insurers, said life insurers have been complacent about considering "conduct" risk, too slow to make changes following previous FMA reviews and not sufficiently focused on developing a culture that balances the interests of shareholders with those of customers.

The regulators found extensive weaknesses in life insurers' systems and controls, with weak governance and management of conduct risks across the sector and a lack of focus on good customer outcomes.

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It said some insurers did little or nothing to assess a product's ongoing suitability for customers and raised serious questions about insurance company use of intermediaries as sales representatives.

Consumer NZ's, head of research, Jessica Wilson, called for reform of the entire insurance industry, not just life insurance.

"We would like to see some specific recommendations for reform and we do think that this needs to be a priority for the Government's legislative agenda," she told the Herald.

The consumer protection organisation has been looking at the insurance industry for the last five years.

"The report shows the issues that we have been highlighting in this industry — particularly around commission-based selling and the problems that that has created for consumers being sold some poor value products and paying high premiums as a result," she said.

Wilson said commission-based selling had led to products being recommended because it had been in the insurers' own interest, and not the consumers'.

"Insurers, as the report says, don't think they have any responsibility for these guys, but that is not our view," she said.

"They have appointed them as their representatives and they need to be shown that their representatives are doing their job properly," she said.

"Because of the significant issues within the industry, ultimately it's the consumers who are bearing the brunt — they are the ones who are being sold the products that have little or no value for them," she said.

"What we would like to see is reform of this industry to be given priority." Wilson said big changes had to be made to improve consumer protection.

"The protections that we have so far are not working and as the report shows, we cannot rely on the industry to do the right thing and put itself in order," she said.

The report also singles out products, such as funeral cover and credit card repayment insurance, which Consumer NZ said provided "very poor value" to consumers.

The Commission for Financial Capability (CFFC) said the report may require companies to change their entire business model.

Managing editor of CFFC's Sorted website, Tom Hartmann, said consumers were at the mercy of intermediaries selling life insurance on behalf of companies who have not invested in their own frontline staff. "It is often impossible for consumers to know the difference between being told or sold," Hartmann said.

The FMA/Reserve Bank report said there was limited evidence of products being designed and sold with good customer outcomes in mind, and very little in the way of policies for identifying and dealing with potentially vulnerable customers.

This follows a report on banking conduct and culture released in December. The problems highlighted in both reports are similar, Commerce and Consumer Affairs Minister Kris Faafoi said, though more extensive in life insurance.

"There are gaps in the regulation of the sector that are exposing consumers and we are going to address them," Faafoi said in a statement.

A comparison of life insurance commissions worldwide shows New Zealanders are paying a high rate of commissions — more than 20 per cent of the cost of the premium, the report said.

Consumers in Many European countries pay less than 10 per cent, and in Australia just over 10 per cent. Annual premiums paid by consumers for life insurance total $2.57 billion, with 4 million life insurance policies in New Zealand.

The Financial Services Council (FSC) - whose membership accounts for 95 per cent of the life insurance market - said it would work with its members in the sector to act on the report's recommendations.

"The life insurance industry accepts there are improvements to be made in a range of areas outlined by the FMA and RBNZ in the report, " FSC chief exeucutive Richard Klipin said.

"We also accept that action in some areas was not taken as quickly as desired and that has been a source of frustration for the FMA and the Reserve Bank," Klipin said.