Finance Minister Grant Robertson said he found the report "disturbing".
Speaking to media this afternoon, FMA chief executive Rob Everett appealed to the Government to help in better regulating the life insurance industry.
"We're asking the Government for the tools so we can properly supervise the industry," he said.
Just hours after the report was released, he got his wish.
In a statement this afternoon, Commerce and Consumer Affairs Minister Kris Faafoi said the Government planned to introduce legislation to address some of the issues in the industry later this year.
"There are gaps in the regulation of the sector that are exposing consumers and we are going to address them.
"We need a regime where banks and insurers are focused on good outcomes for the consumer and are not conflicted by sales rewards."
The Cabinet today agreed it would to get rid of sales incentives in the insurance industry that were "driving behaviour that is not in the best interest of consumers".
"Incentives such as overseas trips and loaded upfront commissions can cause a conflict for the salesperson," Faafoi said.
"We have also heard about insurance policies being sold to people who are ineligible for cover, premiums continuing to be charged for a policy that's no longer in effect, and policyholders not being effectively notified of increases in premiums."
Ardern said that families with life insurance policies are getting both fair and appropriate treatment.
"To hear that our consumers are paying effectively commissions double that of many countries ... seems to me just to be fundamentally wrong."
Faafoi said the Government planned to release a consultation paper on the changes by May and to introduce legislation later this year.
A spokeswoman for Faafoi said many of the major banks and some insurers have already moved away from commission-based rewards.
"Whether this voluntary move goes far enough and exactly what measures we will take more broadly is what officials are now working on. That advice is being fast-tracked and will be consulted on mid-year."
Robertson said the Government wanted to see clearer duties on banks and insurers to consider a customer's interests and outcomes, and to treat customers fairly.
It was time, he said, for the Government to take action.
He wanted to see a strong response to internal sales incentives and soft commissions, as well as better funding of the FMA, or the RBNZ, to monitor the conduct of banks and insurance companies with strong penalties for breaching duties.
This would come as welcome news to Everett, who told media he wanted the Government to give regulators, likely the FMA, the right to go in and investigate firms.
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.
Meanwhile, Robertson said there was scope for the Government to provide the Reserve Bank and the FMA with more funding to help it better regulate the financial sector.
Robertson would not say how much the regulators could receive.
