AA Insurance pinged by $6.175m High Court penalty
Monday, 7 October 2024
AA Insurance has been fined $6.175 million at the High Court for failing to apply multi-policy and membership discounts, as well as guaranteed no claims bonuses.
The fine is a victory for the Financial Markets Authority (FMA) Te Mana Tātai Hokohoko, in the latest in a series of High Court actions taken against insurers by the regulator.
Justice Laura O’Gorman found the insurer broke the Financial Markets Conduct Act, telling it: “Customers are entitled to feel secure that insurance premiums will be charged, and discounts applied, in accordance with policy terms and as represented in marketing material.”
As well as failing to apply discounts, she found AA Insurance, which sponsors the popular Location, Location, Location TV show, misled customers about its multi-policy discount offer in marketing material, and misrepresented that certain eligible customers would receive its guaranteed no claims bonus for life.
O’Gorman said: “Customers cannot be expected to double check the precise details of transactions. They are entitled to trust the accuracy of their insurer’s systems and processes.”
AA Insurance admitted the errors, and its chief executive Michelle James, who was not at the helm of the company during the period in which customers were overcharged, said the company had self-reported the errors to the regulator.
“We have apologised for the errors made and between 2020-2022, [and] carried out comprehensive remediation programmes to fully refund more than $15.6m to past and present customers, including with interest,” she said.
Margot Gatland, the FMA’s head of enforcement, said: “The $6.175 million penalty against AA Insurance reflects the sheer scale of customers affected and level of harm caused.”
More than 110,000 AA Insurance policyholders were overcharged.
“While AA Insurance’s marketing material represented existing policy holders who added another policy would receive the discount immediately, AA Insurance’s systems were set up to apply the discount only once the original policy was up for renewal,” Gatland said.
“Separately, AA Insurance also failed to apply the multi policy discount to some customers’ invoices. The issue affected 112,463 customers, who were overcharged a total of approximately $4.89m,” she said.
“The Court also found AA Insurance failed to apply a discount promised to NZ Automobile Association members, which affected 90,129 customers, who were overcharged a total of approximately $2.95m.”
“And the Court held AAI overcharged 17,973 eligible customers approximately $3.28m after it failed to apply its guaranteed no claims bonus benefit on its comprehensive car insurance policies.”
She said the insurer’s systems proved to be inadequate and its marketing had not been in line with internal policies.
“This judgment sends a strong message to the industry that companies need to ensure their systems and processes are fit for purpose and customers’ interests put first,” Gatland said.
AA Insurance’s issues came to light during a period in which the FMA and Reserve Bank Te Pūtea Matua had put insurers under the spotlight with a conduct and culture review of insurers.
In 2018, the FMA published a conduct review of banks, and in January 2019 it published a damning report on the conduct of life insurers, with general insurers such as AA Insurance the next sector in the regulators’ sights.
The joint FMA/Reserve Bank review of general insurers led to many insurers discovering they had made mistakes, resulting in them overcharging customers.
The closer scrutiny of banks and insurers led to a series of prosecutions and tens of millions in refunds being paid to wronged customers.
In October last year, the FMA said banks and insurers had handed back about $150m to more than 1.5 million customers since regulators began in 2018 to demand regular reports on their mistakes.
ANZ and Cigna were among the companies that admitted misleading customers, including charging some for insurance they could not realistically make claims on and double-charging others.