MAS becomes the sixth major insurer to be fined millions for overcharging

Tuesday, 28 November 2023

MAS admitted it failed to correctly apply multi-policy discounts and no claims bonus discounts to some customers who were entitled to them, failing to correctly apply inflation adjustments on some customer policies, and miscalculating benefit payments.

Insurer for the medical profession, MAS, has been hit with a $2.1 million penalty by the High Court in Wellington for overcharging thousands of customers, and it may not be the last to face action from regulators.

MAS becomes the sixth major insurer to be outed for overcharging customers in an industry with systems that have been exposed as having shared fundamental flaws since regulators started to put the industry under closer scrutiny in 2018.

Most of the cases taken by the Financial Markets Authority Te Mana Tātai Hokohoko (FMA) have involved insurers failing to give customers the multi-policy discounts they were promised for having more than one insurance policy with their insurer.

Suncorp (owner of the Vero brand), Tower, AA Insurance, Cigna, and ANZ have all all had to make refunds to customers, with Cigna, Vero and ANZ having been fined after court action, and AA Insurance waiting for its penalty hearing at the High Court.

And the general insurance industry’s largest company IAG, which owns State, AMI and NZI, revealed in its latest annual report it too had issues in New Zealand which it was working on after having been penalised A$40m (NZ$43m) in Australia for failing to give full loyalty discounts to over 60,000 customers.

IAG chief executive Nick Hawkins said: “Our remediation is largely complete, with work ongoing in our New Zealand business.”

Margot Gatland, Financial Markets Authority head of enforcement, says, ‘MAS’ breaches were widespread across the whole of its insurance business due to fundamental flaws in the design of MAS’s systems and processes.’

FMA head of enforcement Margot Gatland would not be drawn on whether IAG would face action.

The FMA has identified some patterns among the insurers which have confessed to overcharging customers.

“Quite a lot of people affected. They have gone on for long periods of time,” Gatland said.

The issues with insurers arose out of underinvestment in systems and processes, she said.

Systems often relied on insurance company workers to properly enter discount details into insurers’ systems, without there being audit checks to ensure mistakes were not occurring, court judgments show.

In many cases insurers failed to identify overcharging for long periods of time despite the extensive scale of overcharging.

At MAS 16,470 people were overcharged. There were 45,000 at Vero, and over 100,000 at AA Insurance.

The full scale of the overcharging is still emerging.

Tower insurance chief executive Blair Turnbull says the company “owned” its mistakes, and is fixing them.

Earlier this month, Tower said it had increased the amount it expected to have to pay in refunds to customers who it failed to apply multi-policy discounts to from $6.2m to $11.2m, which helped tip the insurer into a loss in its last financial year.

It was paying refunds to about 65,000 customers.

Tim Grafton, chief executive of the Insurance Council Te Kāhui Inihua o Aotearoa, said common threads through the cases involving the general insurers was that they had identified the problems themselves, and reported them to the FMA.

The cases also involved relatively small sums for individual policyholders, and when insurers had made refunds, they had added interest, he said.

But while the issues were self-reported, cases have revealed details of how insurers tackled overcharging.

The High Court in Wellington found MAS was aware some multi-policy discounts were being misapplied in March 2014, but did not commence a large-scale investigation until late the following year.

IAG is not a name familiar to many households, but the many insurance brands it owns are: State, AMI, NZI, Lantern Insurance, Swann Insurance, NAC Insurance and and Lumley. It is currently working on refunding customers it overcharged.

It discovered 20,200 instances of overcharging, and that it had overcharged by nearly $590,000, but decided not to apply the multi-policy discounts on each customer’s policy until they came up for their annual renewal, and decided not to give customers refunds.

MAS had failed to fix the system, however, and in 2019 when it looked again, it found it had been overcharging some customers from 2014.

MAS has apologised to customers.

The insurer overcharged 16% of its customers, earning $6.6m more in premiums, with the average customer overcharged by $378.

When he imposed the $2.1m fine, Justice Peter Churchman said he could not overlook MAS’ behaviour between 2014 and 2019.

“The misconduct in this case is serious,” Justice Churchman said, and imposed a fine that was designed to be sufficiently high that it was not just seen as a “cost of doing business”.

MAS issued a statement through its head of legal and compliance Nick Mereu, saying: “We are very sorry for the impact to our affected members and for any concern this may have caused all our members. We hold ourselves to high product and service standards, so when we find issues like these, we look to put them right.

“As a result of a thorough conduct and remediation project, we have much improved systems, processes and controls to prevent these types of issues from occurring again.”

The life insurance industry had similar issues to the general insurance industry.

In September last year, Clare Bolingford, the FMA’s director for banking and insurance, said since the FMA began looking closely at insurers in 2018 after systemic issues were revealed in Australian banks and insurers, 225 “issues” had been reported to the FMA involving life insurers, many the result of creaking systems and weak controls.

“Nearly half-a-million customers have been impacted, and more than $43m paid in remediation. And that’s just for the one-third of issues whose impacts have been fully assessed,” she said.