Regulator takes action alleging Medical Assurance Society over-charged customers
Thursday, 1 June 2023
The financial markets regulator has filed proceedings at the High Court in Wellington against Medical Assurance Society for “fair dealing” law breaches that left customers out of pocket.
The Financial Markets Authority Te Mana Tātai Hokohoko (FMA) is asking the court to declare MAS contravened the Financial Markets Conduct Act, and impose a financial penalty against the insurer, which sells both general and life insurance.
The FMA claims that between 2014 and 2022, MAS failed to apply the correct inflation adjustments on some of its customers’ insurance policies, failed to apply multi-policy discounts and no claims bonuses, and underpaid life and disability claims to eligible clients.
Nick Mereu, MAS’s head of legal and compliance, said: “We would like to apologise profusely to those of our members who were affected by these incidents.
“We hold ourselves to high standards of product and service. When we get things wrong, we look to put them right.”
The FMA said the insurer had cooperated in its investigation, which appears to be the latest action to follow a regulatory crackdown that started with joint review of insurer conduct in 2019 by the FMA and the Reserve Bank of New Zealand Te Pūtea Matua.
MAS self-reported concerns over its past behaviour to the FMA, and is the latest in a series of insurers to confess to failures that cost its customers.
The FMA alleges MAS, which has a large client base of medical professionals, overcharged some insurance customers by failing to give them premium discounts for having more than one insurance policy with it.
Some customers were given a discount, but a lower one than they should have got.
About 8864 customers were overcharged $3.3m, the FMA said.
MAS had already “reimbursed” customers $3.9M over these failures, the regulator said.
Some customers, who had opted to have their cover increased by the rate of inflation each year so their cover did not lose real value, instead had their cover increased at a higher rate.
The FMA said 6267 customers were overcharged $1.7m as a result of incorrect inflation adjustments which pushed up their premiums. MAS had reimbursed $780,501, the FMA said.
The regulator said MAS also made various errors when manually calculating a customer’s benefit payments.
“These errors resulted in some customers receiving lower benefit payments than they otherwise would have if the errors had not occurred,” the FMA said.
Just over 100 customers ended up being paid about $1m less at claims time than they should.
The FMA said MAS had reimbursed just under $1.2m to them.
In a fourth set of errors, the FMA said MAS did not apply the correct no claims bonus grade to premiums for 1235 customers, resulting in them paying $572,061 too much.
MAS had reimbursed $639,821 to affected customers, the FMA said.
The FMA said MAS’s failures were due to errors and deficiencies in its systems, including data entry errors by MAS employees.
Mereu said MAS, which was owned by its customers, had improved its systems, processes and controls to prevent the same types of issues from occurring again.
“We have remediated impacted Members fully, including compensation.”
MAS was unable to comment further on the proceeding while the matter was before the courts, Mereu said.
The regulator said MAS self-reported the issues listed above to the FMA between 2019 and 2022.
The self-reporting began when the FMA and Reserve Bank Te Pūtea Matua did a Conduct and Culture review of insurers.
The review was launched following revelations in Australia that some banks and insurers had been mistreating customers leading to fears the same thing had been happening in New Zealand.
The joint FMA/Reserve Bank review led many insurers to admit they had made mistakes, resulting in them overcharging customers.
In October last year, the FMA said banks and insurers had handed back about $150m to more than a 1.5m customers since regulators began in 2018 to demand regular reports on their mistakes.
The closer scrutiny of banks and insurers had led to a series of prosecutions. ANZ and Cigna admitted misleading customers, including charging some for insurance they could not realistically make claims on, and double-charging others.
Kiwibank is also facing court action. The FMA alleges it misled about 35,000 home loan customers, who were told they wouldn't be charged transaction fees on their accounts, if they had home loans with the bank.
ASB had to repay about $8.9m to borrowers whom it accidentally overcharged when they broke their fixed-term home loans between April 2005 and December 2016.
It also had to make about $8.1m in compensation payments to about 73,000 borrowers who had home loans and personal loans with the bank between June 2015 and July 2019.
Insurers had paid more than $43m in remediation for errors that resulted from “creaking systems and weak controls” to half-a-million customers in the four years since the regulators launched their crackdown on the sector, the FMA said last year.