A New Zealand travel insurer has been found to have acted in bad faith after telling a seriously ill customer stranded in Bali to fly home on a different airline and not mention her medical conditions. The Insurance and Financial Services Ombudsman ordered compensation, and the regulator is now paying attention. For any business selling a regulated financial product, this is what conduct risk looks like when it leaves the compliance manual and lands on a phone call.
Cheaper for the insurer, riskier for the patient
The traveller, identified only as Cara, fell seriously ill in Bali. Her doctors said she needed a travel companion to fly, and Air New Zealand’s own medical team assessed that she would need a nurse or doctor as an escort, RNZ reports.
The insurer’s response was to tell her escort costs would not be covered, that she was fit to fly without one, and that she should book with another carrier without disclosing her conditions. She had originally booked an Air New Zealand Economy Skycouch so she could lie flat; the insurer pointed her to business class elsewhere, then paid only the Skycouch equivalent, declined her companion’s flights in full, halved “shared” expenses and refused flights rebooked from Sydney.
In other words, the insurer gave advice designed to save money, then shaved the claim anyway.
Beyond unfair, into bad faith
Ombudsman Karen Stevens did not stop at the usual unfair-treatment finding. “The insurer’s conduct went beyond failing to treat [Cara] fairly and supported a finding that it had acted in bad faith,” she said, according to The Post.
Her central objection is blunt. The suggestion to fly with another airline without disclosure “directly risked her health in order to reduce costs,” Stevens said.
The scheme found material breaches of fair conduct obligations under the Financial Markets Conduct Act 2013 and a failure to provide services with reasonable care and skill under the Consumer Guarantees Act. The insurer must pay $5,000 in compensation plus the business-class fare, the companion’s flights and the Sydney rebooking.
The FMA is already taking notes
The money is immaterial to any insurer’s balance sheet. The follow-through is not. Clare Bolingford, the FMA’s executive director for licensing and conduct supervision, confirmed the regulator has a live review of travel insurance conduct and that “this case will be considered as part of the information informing that work.”
That review sits inside the Conduct of Financial Institutions regime, in force since March 2025. In its 2025 Financial Conduct Report, the FMA said governance was improving but flagged gaps driven by legacy technology, manual controls and inadequate staff training. It also signalled it would prioritise firms that had not self-reported material fair-treatment issues. Silence, in other words, is treated as a warning sign. The same report found 86% of New Zealanders owned at least one insurance product, so these standards touch almost everyone.
The FMA has form here. Southern Cross Travel Insurance previously admitted misleading statements and paid a seven-figure sum after an FMA investigation, a reminder the regulator is willing to enforce in this sector.
The disclosure rule, turned upside down
What makes this case striking is the direction of the dishonesty. The industry’s usual non-disclosure fight runs the other way. In 2025, the ombudsman scheme said about 10% of its complaints involved claims declined or policies avoided for non-disclosure, with pre-existing medical conditions the largest category at 39%.
Insurers lecture customers constantly on full disclosure. In August, Southern Cross’s Jess Strange said “we can’t offer cover for an undisclosed condition or symptom, so it’s essential customers share as much as they can with us.” Against that sector standard, coaching a customer to withhold health information from an airline is hard to read as anything other than a deliberate cost-saving tactic.
2027 will not be forgiving
The Contracts of Insurance Act 2024 fully applies from 2027 and will require virtually every policy to be rewritten. Caroline Laband, partner at Wotton + Kearney, warned in August that “there’s a lot of work that the industry needs to be doing to get its products and systems up to scratch.”
Firms rewriting wordings should be rewriting claims scripts, training and incentives at the same time. A frontline staffer optimising for claim cost, with no one checking how, is precisely the failure the FMA described.
Self-police, or be policed
The lesson for insurers, lenders, advisers and wealth managers is not that New Zealand needs more regulation. It is that firms which fail to supervise their own frontline invite exactly the heavy-handed response a trust-based market should want to avoid. One bad call on one phone line has produced a bad-faith finding, a named case in a live FMA review and headlines across the country. Boards should be asking a simple question this week: if a vulnerable customer rang us tomorrow, what would our staff actually say?
Sources
- RNZ: Insurer told traveller not to disclose medical condition (2026-11-12)
- NZ Herald: Seriously ill Kiwi traveller awarded $5000 payout after insurer found to have acted in bad faith (2026-11-12)
- The Post: Insurance ombudsman alerts FMA after travel insurer pressured sick Kiwi holiday-maker to ignore medical advice (2026-11-12)
- FMA: 2025 Financial Conduct Report (2025)
- FMA: Southern Cross Travel Insurance admits to making misleading statements and pays more than $1million
- Insurance Business Magazine: The travel insurance disclosure conversation brokers aren’t having (2026-08-20)
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