Insurer cops $6m court penalty
AA Insurance (AAI) has been ordered by the High Court to pay $6.175 million for failing to apply multi-policy and membership discounts, as well as guaranteed no-claims bonuses.
The court’s judgment, which follows proceedings brought by the Financial Markets Authority (FMA), says the company also 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.
AAI admitted its conduct breached section 22 of the Financial Markets Conduct Act. The breaches, which resulted in about $11.12m in overcharges, mainly arose out of failure and deficiencies in its systems and processes.
The High Court found AAI misled some customers about its multi-policy discount in marketing material between 2015 and 2020.
While the firm’s marketing material said existing customers who added another policy would receive the discount immediately, its systems were set up to apply the discount only once the original policy was due to be renewed.
Separately, AAI also failed to apply the multi-policy discount to some customers’ invoices. The issue affected 112,463 consumers, who were overcharged a total of about $4.89m.
The court also found AAI failed to apply a discount promised to NZAA members, which affected 90,129 customers, who were collectively overcharged about $2.95m.
The judgment says AAI also 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.
In addition, AAI misled customers in marketing that said eligible customers would receive its guaranteed no-claims bonus “for life”.
Until December 2011, AAI offered the bonus for each customer’s lifetime, providing the customer remained insured with AAI. After that date, the benefit was amended so the bonus was applicable to the life of each customer’s policy only.
However, some of AAI’s marketing continued to use the same “for life” language without limitation.
Justice Laura O’Gorman declared AAI breached section 22 of the Financial Markets Conduct Act and imposed a pecuniary penalty with a starting point of $9.5m, a discount of 35 per cent and a final penalty of $6.175m.
In her decision, she said: “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.
“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.”
Margot Gatland, FMA head of enforcement, adds the $6.175m penalty reflects the scale of customers affected and level of harm caused.
“AAI’s systems proved to be inadequate and its marketing was not kept in line with internal policies,” she says.
“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.”
In a statement released after the court’s penalty, Michelle James, AAI’s chief executive officer, says the company is committed to making things right when mistakes happen and “put our customers at the heart of our response”.
“We have apologised for the errors made and between 2020 and 2022, carried out comprehensive remediation programmes to fully refund more than $15.6m to past and present customers, including with interest,” she explains.
“We self-reported to the FMA and have worked co-operatively with them throughout the process.
“We are committed to being better and are confident that today we have stronger systems and processes in place, which we continue to build on. We are also investing heavily in the transformation of our core systems, which will help to further improve the experiences our customers have with us.”
