Insurance Commission Clawback in NZ: Why Your Adviser May Push Back on Switching Cover

A clawback means your adviser repays part of their upfront commission if you cancel cover early — usually within two years. Here is how that window quietly shapes whether switching your policy is actually in your interest.

TL;DR: A clawback means that if you cancel a policy soon after taking it out — usually within two years — your adviser has to repay part of the upfront commission to the insurer ¹. Because that upfront commission can be up to 200% of your annual premium ², the clawback window creates a real incentive that can quietly shape whether an adviser recommends switching your cover.

If you have ever wondered why an adviser seemed reluctant to move you to a "better" policy, the answer often sits in a mechanism most clients never hear about: the commission clawback. It is not sinister, and on balance it protects you more than it harms you. But it does create a conflict of interest, and the honest thing is to explain how it works so you can read the advice you are given.

This guide covers what a clawback is, how long the window runs, why it exists, and the questions worth asking before you switch cover.

What is a commission clawback on insurance in NZ?

When you take out a life, trauma, income protection or health policy through an adviser, the insurer usually pays that adviser a large upfront commission — a one-off payment in the first year, on top of smaller ongoing payments in later years.

A clawback is the insurer's safeguard against paying that big upfront sum and then losing the policy almost immediately. If the policy is cancelled within a set period, the adviser has to repay part of the upfront commission to the insurer ¹. The Financial Markets Authority (FMA) describes this as the "responsibility period", and notes that some advisers pass part of that charge on to the customer ¹.

So the money flows like this:

• You take out a policy. The insurer pays your adviser an upfront commission.
• You cancel inside the clawback window. The adviser repays a portion of that commission.
• The insurer is, in effect, refunded for cover that never really got going.

The key point for you is the incentive it creates. An adviser facing a clawback has a financial reason not to move you off a recent policy — which can protect you from needless switching, or, less helpfully, can make them slow to act when switching genuinely would suit you.

How long is the clawback period and how much gets repaid?

The FMA states the clawback period is usually two years ¹. Within that window, the amount the adviser must repay typically reduces the longer the policy has been in force — a policy cancelled in month two costs the adviser far more than one cancelled in month twenty.

The reason the stakes are high is the size of the upfront commission being protected. The FMA states that upfront insurance commission "can be as high as 200% of the annual premium, including bonus commissions", with a servicing commission of 5% to 25% in later years ². Independent broker disclosures put the typical first-year (upfront) commission on life and disability cover at roughly 75% to 230% of the first-year premium, with renewal commission of about 3% to 30% ⁷.

The mechanics are also being refined. From 20 October 2025, Chubb Life NZ changed how it calculates clawbacks — basing them on the number of months elapsed since the policy start date rather than the number of premiums paid over a 24-month period ⁸. That change confirms the window remains around 24 months heading into 2026.

Table: how the upfront commission and clawback window typically work in NZ. Figures are illustrative ranges from the sources cited; actual rates vary by insurer and product, and not every insurer is shown.

A worked example makes the scale clear. On a policy with a $2,000 annual premium, a 200% upfront commission is a $4,000 payment to the adviser in year one ². If you cancel early, a meaningful slice of that $4,000 has to be handed back — which is exactly why the timing of a switch matters to the adviser, not just to you.

Why does clawback exist and what problem is it meant to solve?

Clawback is not designed to trap you. It is designed to stop advisers being paid a fortune for cover that does not stick.

Without it, an adviser could earn a 200% upfront commission, the policy could lapse a few months later, and the insurer would be badly out of pocket — having paid for a long-term relationship that lasted weeks. The clawback aligns the adviser's pay with the policy actually being suitable and staying in force.

It also acts as a brake on a behaviour the FMA has flagged as harmful: unnecessary policy switching, known as churn. By making early cancellation expensive for the adviser, the clawback removes some of the incentive to move clients between insurers just to trigger a fresh upfront commission. In that sense, the mechanism works in your favour — it makes the adviser care whether the cover lasts.

The trade-off is the conflict it introduces, which we come to next.

How can clawback affect the advice you receive?

This is the honest part. A clawback is built to discourage churn, but the same incentive can pull the other way.

Within the clawback window, an adviser has a financial reason to keep you where you are, because moving you means repaying commission they have already earned. Most of the time that aligns with your interests — switching cover is a genuinely high-risk transaction, as we cover below. But there will be cases where a different policy really would suit you better, and an adviser facing a clawback may be slow to raise it, or may frame "stay put" more favourably than the facts warrant.

Once the window closes, the incentive flips. After roughly two years, the adviser can move you to a new insurer and earn a fresh upfront commission with no clawback to repay ³. That is the point at which switching becomes financially attractive to the adviser — regardless of whether it benefits you.

Figure: how the clawback window shapes incentives over a policy's life (source: Smiths Financial).

Neither end of this is automatically bad advice. But knowing where your policy sits on this timeline helps you weigh up why a recommendation is being made when it is made.

The regulatory backstop is the Code of Professional Conduct for Financial Advice Services, which requires advisers to manage and disclose conflicts of interest and to give priority to the client's interests ⁹. The clawback conflict is precisely the kind of thing that duty exists to govern.

What is 'churn' and how does the clawback window relate to it?

Churn is the practice of moving clients from one insurer to another without a good reason for the client — often to generate a new upfront commission. It is a known issue in the NZ market, and it tends to spike right when the clawback window ends.

The FMA's review Replacing life insurance — who benefits? found that a high rate of replacement business suggests there may be churn, especially when it occurs after the adviser's commission can no longer be clawed back by the original insurer ³. In other words, the end of the clawback window is itself a warning sign worth watching.

The scale, from that review:

• New Zealanders spent about $1.7 billion on annual life insurance premiums in the year to 30 June 2014, and advisers sold over 40% of the policies in force at that point ⁵.
• 45 high-volume advisers replaced more than 20% of their life policies in a single year; nine replaced more than 30%; and some replaced more than 35% in one year ⁴.

That last figure matters because it shows churn is concentrated among a minority of advisers, not the norm — most advisers are not doing this. But it is real, and it is why the FMA treats replacing a policy as a high-risk transaction.

Why high-risk? Because switching can mean future claims being declined and original policy benefits being lost ⁶. A new policy means new underwriting, new exclusions, and new stand-down periods, and any health condition that has developed since your original policy may now be excluded or loaded. Worryingly, the FMA found that fewer than half of the firms it reviewed told customers that replacing cover could lead to worse cover or loss of benefits ⁶. That is the core danger of churn: you can end up paying more for less protection, and not be told.

For how a careful adviser approaches replacement properly, see our guide on how advisers compare insurers in NZ.

What questions should you ask an adviser about clawback before switching?

If an adviser recommends switching your cover, these questions surface the incentive and the risk in one conversation. Ask them plainly.

1. Is my current policy still inside its clawback window? This tells you whether moving me costs you, or pays you.

2. Will you earn a new upfront commission if I switch — and how much? A dollar figure or percentage, not "it varies".

3. What benefits, exclusions or stand-down periods would I lose or gain by switching? Replacing cover is high-risk for exactly this reason ⁶.

4. Would the new policy require fresh medical underwriting? Any condition since your original policy could be newly excluded.

5. Would you put this comparison — old policy vs new — in writing before I act? A like-for-like written comparison is the standard a careful adviser meets.

6. How are you managing the conflict of interest here? The Code requires advisers to disclose and manage conflicts and prioritise your interests ⁹.

A good adviser will welcome these. Reluctance to answer the first two in particular is itself informative.

For the fuller picture on how advisers are paid, see fee-only vs commission financial advisers in NZ. And for how cover should be built in the first place, how an adviser structures life cover.

How does Smiths Financial handle the conflict clawback creates?

We are generally paid by commission from the insurer when you take out cover through us, which is why the advice and review usually cost you nothing directly. That means the clawback conflict applies to us as it does to any commission-based adviser, and we would rather name it than pretend it does not exist.

The way we manage it is simple. We only recommend replacing a policy when we can show, in writing, that the new cover is genuinely better for your situation — comparing benefits, exclusions, stand-down periods and underwriting side by side, not just the premium. If your current policy is the better one, we will tell you to keep it, even where switching would pay us. Where a recommendation would earn us a commission, we disclose it, as the Code of Professional Conduct requires ⁹.

This is general information, not a recommendation about your own cover. To work through whether switching is actually in your interest, a conversation tailored to your circumstances is the right next step.

Frequently asked questions

How long does an insurance commission clawback last in NZ?

The FMA states the clawback (or "responsibility") period is usually two years ¹. The amount the adviser must repay generally reduces the longer the policy has been in force, and from 20 October 2025 Chubb Life NZ calculates it on months elapsed within roughly a 24-month window ⁸.

Does a clawback cost me money if I cancel my policy?

Often not directly — the clawback is a repayment from the adviser to the insurer. However, the FMA notes that some advisers pass part of that charge on to the customer ¹, so it is worth asking your adviser before you cancel whether any fee would apply to you.

Why might my adviser discourage me from switching cover?

If your policy is still inside its clawback window, switching means your adviser repays part of the commission they have earned, so they have a financial reason to keep the cover in place ¹. Usually that aligns with your interests, because replacing cover is high-risk — but it is a conflict worth being aware of ⁹.

What is insurance churn and why is it a problem?

Churn is moving clients between insurers without a good reason for the client, often to earn a fresh upfront commission. The FMA found it tends to occur after the clawback window ends ³, and that replacing cover can lead to declined claims or lost benefits — risks fewer than half of reviewed firms warned customers about ⁶.

Is switching life insurance always a bad idea?

No. Sometimes a different policy genuinely suits you better. But replacing cover is a high-risk transaction because of new underwriting, exclusions and stand-down periods ⁶. The safeguard is a written, like-for-like comparison of the old and new policies before you act, plus disclosure of any commission the adviser would earn ⁹.

This article is general information only and is not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Before acting, consider whether it's right for you and seek advice tailored to your circumstances. Whether a claim is paid depends on the terms, conditions, exclusions, stand-down periods and underwriting of the specific policy, and on your disclosure. This is a summary only — always read the policy wording / product disclosure statement. Craig Smith Business Services Ltd (FSP712931), trading as Smiths Financial, holds a Class 2 licence issued by the Financial Markets Authority to provide financial advice on personal risk insurance, health insurance, general insurance, KiwiSaver and managed funds, and is a member of the Financial Dispute Resolution Service (FDRS). Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. Last reviewed 16 December 2025.