The shift in the New Zealand financial and insurance sectors due to rapid AI development is providing serious efficiencies for players and operations; yet at the same time has been triggered alarm bells from the Reserve Bank of New Zealand (RBNZ). In its most recent Financial Stability Report issued in May of 2025, the RBNZ said the tools available through artificial intelligence can be excellent for contributing to fraud analysis, and decisions about financial management; but can also introduce new vulnerabilities and potential issues of trust associated with the financial system.
The report noted that regulated entities will need to adapt their risk management processes to accommodate ai-specific exposures, such as potential reliance on third-party AI vendors, opaque surrounding data issues, and unintended consequences of automated decision-making. Moreover, the report noted the timing these worries coming against the backdrop of the central bank’s increasing frustrations about technology developments, with the adoption of technology outpacing the pace of regulatory protections.
AI’s Double-Edged Impact on the Financial Sector
According to Kerry Watt, director of financial stability assessment and strategy at RBNZ, the dual nature of AI is creating a complex landscape.
The AI expansion has enabled advances in cyber defense, real-time analytics, and customer personalization. However, the RBNZ warned that overreliance on opaque algorithms could create blind spots in oversight and risk control. As AI systems become deeply embedded in operations, system-level risks could emerge—especially if critical components fail or behave unpredictably during financial stress.
The RBNZ emphasized that regulatory frameworks must evolve alongside innovation, ensuring that core principles of prudential supervision remain intact amid rapid transformation.
GenAI Investments in NZ Outpace Global Peers
While the central bank sounds the alarm, businesses across New Zealand and Australia are aggressively investing in GenAI. A recent study by Snowflake and the Enterprise Strategy Group revealed that 32% of regional firms are allocating over 25% of their tech budgets to GenAI—higher than the global average of 25%.
Return on investment is also slightly stronger in Australasia. Respondents in the region reported a 44% ROI on GenAI initiatives compared to 41% globally. Notably, 91% of firms said AI is enhancing decision-making speed, outperforming the global benchmark of 84%.
Organizations are primarily deploying GenAI in customer-facing functions customizing communication, accelerating service delivery, and refining engagement strategies. Yet challenges persist. The survey found that 63% of ANZ businesses face higher-than-expected staffing costs, compared to only 48% globally. Hiring and onboarding AI-skilled talent has proven costlier and more complex than initially planned.
Consumer Caution in Insurance Sector Slows Adoption
In the insurance space, consumer sentiment presents an additional hurdle. A GlobalData survey found that while many New Zealanders acknowledge AI’s ability to speed up claims processing and support, trust in automated decisions remains low.
Despite its clear potential, AI expansion in the financial system is testing the balance between innovation and regulation. As institutions scale AI-driven tools, the RBNZ and other authorities are likely to place greater emphasis on safeguards, governance, and public trust.
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