Insurer IAG faces court action in charging 269,000 customers wrong premiums

Friday, 4 April 2025

IAG is not a name familiar to many households, but the many insurance brands it owns are including State, AMI, and NZI.

The Financial Markets Authority has filed court proceedings against insurer IAG over historic failures to properly set premiums for 269,000 policyholders, including failing to apply some multi-policy discounts and no claims bonuses.

IAG, which owns the State, AMI and NZI brands and is the country’s largest insurer, says it self-reported the mistakes to the regulator in 2019 and repaid overcharged customers with interest.

FMA head of enforcement Margot Gatland said the court action alleged 11 breaches of the Financial Markets Conduct Act covering false or misleading representations.

“The breaches arise from IAG’s failures to correctly price the premiums charged to customers and its failures to correctly advertise and apply important discounts to its insurance products sold via its business divisions and distribution partners,” she said.

But she said the insurer had fully co-operated with the FMA’s investigation and called its behaviour once the mistakes had been identified as “exemplary”.

Area Williams quizzes Consumer NZ's Aneleise Gawn on unfair insurance contract terms.

“IAG’s self-reporting was followed by its very early admission of liability, and its full co-operation including its commitment to an undefended proceeding,” Gatland said.

IAG identified and reported the errors to the FMA after the regulator teamed up with the Reserve Bank in 2018 and 2019 to conduct a review of banks and insurers after terrible behaviour by Australian banks and insurers was revealed in an Australian Royal Commission into misconduct in financial services.

Insurers which completed the exercise revealed how error-prone the industry with tens of thousands of customers having been overcharged, often because they did not get the multi-policy discounts they had been promised.

Margot Gatland, Financial Markets Authority head of enforcement, says the organisation can only look as far back as 2014.

As a result of errors identified by insurers Suncorp (owner of the Vero brand), Tower, AA Insurance, Cigna, AA Insurance, MAS, ASB, and ANZ have all all had to make refunds to customers, with Cigna, Vero, MAS, AA Insurance, and ANZ having been fined after court action.

Some of the issues at IAG the FMA was taking action over date back more than 20 years, Gatland said, however, the FMA’s claim was limited to conduct since the introduction of the Financial Markets Conduct Act, which came into effect from April 2014.

About 269,000 customers were affected by the pleaded breaches, resulting in overcharges of $35m, with net gain to IAG of approximately $31.1m, the FMA said.

IAG New Zealand’s chief executive Amanda Whiting says the company’s focus had been to put things right with customers.

Some policyholders did not get multi-policy discounts they were entitled to, and some did not get no-claims bonuses.

The issues affected customers from ASB, Westpac, and BNZ, which all earned commissions from promoting IAG insurance to their customers.

IAG New Zealand’s chief executive Amanda Whiting said: “Since identifying these issues, our focus has been on putting this right for our customers who were impacted, providing them with their refund and apologising for our mistakes.”

“We are doing everything to prevent these issues happening again,” Whiting said.

In 2018 and 2019, financial regulators conducted deep dive inquiries at banks and insurers. Financial Markets Authority then chief executive Rob Everett and then Reserve Bank governor Adrian Orr are pictured at the time.

“Our investigations also found that a significant number of customers benefited from being undercharged,” she said.

“I apologise to our customers who were inaccurately charged or did not receive the discounts they were entitled to at the time.

“The underlying issues relating to these matters have been fixed, and repayments will be completed by 30 June this year,” she said.

The remediation payments had been revealed in IAG’s annual reports.

Whiting said IAG had invested heavily in systems and processes that needed improvement.