Insurance Intermediaries Act 1994

The Insurance Intermediaries Act 1994 sets ground rules for money and notices moving through insurance intermediaries in New Zealand. It is especially important where a business buys insurance through a broker, pays premiums in instalments, receives claim proceeds through a broker, or wants comfort that client money is protected if the broker fails.

The Act does three practical things. First, it allocates payment risk between insureds, insurers and intermediaries. Secondly, it imposes timing and client-account duties on brokers. Thirdly, it protects broking money from general claims and sets a priority order if a broker becomes insolvent.

The Act applies to insurance intermediaries and, for many of its operational duties, to brokers. It defines an insurance intermediary broadly as a person who for reward arranges contracts of insurance in New Zealand or elsewhere, acting as an employee of or agent for one or more insurers or as agent for the insured. A broker is a narrower category with specific statutory duties.

A person is a broker if they carry on the business of arranging contracts of insurance, are not an employee of the insurer, and are not appointed under a signed agreement as the insurer’s agent for receiving money due between insured and insurer. The Act also says a signed agency agreement is deemed to appoint the person for those money-receipt purposes unless the agreement states otherwise.

The Act does not apply to contracts or proposed contracts of reinsurance. It also says sections dealing with payment consequences apply despite the proper law of the contract being foreign law, which matters for cross-border placements.

Most businesses will encounter this Act at ordinary transaction points rather than in a dispute. Common triggers are paying a premium to a broker, paying an instalment, receiving a claim settlement through a broker, getting a refund after cancellation, or asking whether cover is effective when money has not yet reached the insurer.

Another trigger is where more than one intermediary sits in the chain. The Act allows payment by a broker to another insurance intermediary to count as payment to the insurer in some cases, and notice to another intermediary to count as notice to the insurer in some cases. There is also a special rule for Lloyd’s business, where paying or notifying the Lloyd’s broker can be enough compliance.

For a business owner, the practical lesson is simple: do not treat intermediary handling as invisible back-office plumbing. Keep records of who received money, when cover started, whether the premium amount was final, and whether any written notice was sent after non-payment or cancellation issues arose.

The Act draws an important distinction between money flowing from the insured to the intermediary and money flowing from the insurer to the intermediary. If your business pays money to an insurance intermediary under or in relation to a contract of insurance arranged, effected, or to be arranged or effected by that intermediary, that payment discharges your liability to the insurer.

In plain English, if you have paid the intermediary, the insurer is generally treated as having been paid as between you and the insurer.

The reverse protection is different. If an insurer pays money to an insurance intermediary, that does not discharge the insurer’s liability to the insured. So if claim money or a refund is sent to the intermediary and does not reach your business, the insurer is not automatically off the hook.

The Act also blocks contracting out of these core rules, except that an intermediary and insured can agree on set-off so the intermediary may set off money payable to the insured against premiums payable by the insured to the intermediary.

The Act imposes specific duties on brokers once they receive premium money. If the risk has been accepted by or on behalf of an insurer, the broker must pay the insurer within the relevant period. The relevant period is generally 50 days after the end of the month in which cover starts, or for an instalment, 50 days after the end of the first month to which the instalment relates.

If the broker does not yet know the premium amount, the Act still requires payment within that period of the smaller of the amount received or 75% of a fair estimate of the premium, or for a renewal, 75% of the previous year’s premium or last instalment as applicable. If the premium has not been received by the end of the relevant period, the broker must notify the insurer in writing within 7 days, unless the premium is received before the notice is sent.

When a broker receives money from an insurer for an insured, the broker must pay it to the insured within 7 days. If the broker receives a cheque payable to a particular insured, it must be sent immediately to that insured.

Every broker must establish and maintain one or more insurance broking client accounts with a financial institution in New Zealand. The Act also allows one or more such accounts outside New Zealand with overseas financial institutions. Each insurance broking client account must be a cheque account.

The broker must ensure certain money is paid into a client account immediately after receipt. That includes money received from or on behalf of an insured for or on account of an insurer, money received from or on behalf of an insurer for or on account of an insured, money realised from investments that must be returned to the account, and any other money required by regulations.

Money can only be paid out for purposes allowed by the Act, such as authorised payments, authorised investments, correcting money paid in by error, or as regulations allow.

Investment is permitted under the Trusts Act 2019 framework, but not in equity securities within the meaning used in the Financial Markets Conduct Act 2013. Premium money for insurance not yet accepted by the insurer cannot be invested before acceptance of the risk.

One of the Act’s most useful business protections is its treatment of broking client money on insolvency. Money in an insurance broking client account, and property in which that money has been invested, is treated as though it were subject to a trust in favour of the persons entitled to it. The Act also says this money is not available to be attached, taken in execution, or made subject to set-off or similar processes except by a person entitled to that money under the Act.

The Act sets a payment order if the broker falls into one of the insolvency or administration situations listed in the legislation. First, money paid into the account in error is withdrawn. Next, insureds are paid amounts due in respect of claims under insurance contracts. Then insureds are paid other amounts due to them. Only after that are insurers paid amounts due to them. If there is not enough money for a category, payments in that category are made proportionally.

For SMEs, this means client money is not simply mixed into the broker’s general asset pool. But you still need records proving what your business is entitled to receive.

If your business buys insurance through a broker, the safest approach is to treat premium payments and claim receipts as controlled financial events. The Act gives useful protections, but those protections work best when your records are clear and your broker relationship is documented.

Before renewal, ask who is acting for whom, where premium money is paid, whether another intermediary is involved, and how claim money will be remitted. During the policy year, keep proof of every payment and follow up quickly if a receipt, cover confirmation or claim remittance is delayed. If your business has a large programme or multiple entities, centralise these checks so one missed instalment or delayed refund does not create confusion across the group.