The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko will be seeking declarations of contravention during an imminent penalty hearing after Cigna Life Insurance New Zealand Limited admitted to making false and/or misleading representations to certain policyholders between 2014 and 2019.
The admission comes as part of the Wellington High Court proceedings brought by the FMA, accusing Cigna of breaching the fair dealing provisions of the Financial Markets Conduct Act 2013 – which came into force on April 01, 2014 – when communicating and charging customers for inflation increases to premiums and cover. The case spans 52,363 policies, but the regulator said the issue goes back to 2013 when Cigna’s indexation rates were changed.
“Indexation is commonly offered on insurance policies to give customers the option of having their insurance cover (sum insured) increasing annually to keep up with inflation,” explained the FMA. “It is often set using the Consumer Price Index (CPI) and premiums and cover are increased accordingly. Indexation is beneficial to many customers because it helps to ensure their cover is not reduced by the impact of inflation.
“From early 2013 until early 2019, Cigna increased customers’ premiums and cover under indexation benefits, on a variety of life insurance policies, using flat rates of indexation that significantly exceeded the CPI, and which were not set with reference to the CPI or the fixed rates contained in customers’ policies, as was required under the relevant policies. The company communicated these changes to customers on an opt-out basis, through annual policy notification letters.”
In a release today, the watchdog revealed that Cigna has admitted to contravening the fair dealing provisions and has filed a corresponding admissions notice in the High Court.
“The matter will proceed to a penalty hearing before the Court where the FMA will seek declarations of contravention, and the parties will submit that Cigna should be ordered to pay a pecuniary penalty,” stated the regulator.
“Cigna self-reported the issue in February 2019, after the final report of the FMA and Reserve Bank of New Zealand life insurance conduct and culture review. After reviewing the issue, Cigna voluntarily commenced a remediation programme in April 2019. The insurer sent a letter to affected customers about the indexation issue, offering full or partial refunds and/or adjustments to the cover of existing customers.”
To date, according to the FMA, Cigna has repaid in excess of $10.7 million of additional premiums to policyholders through the remediation programme. Meanwhile the insurer has agreed to send further letters to certain customers who chose to maintain a higher level of cover instead of a refund, to advise them of the admissions.
“Cigna’s contraventions did not arise as a result of systems errors,” asserted FMA enforcement head Margot Gatland, “they were the result of periodic decisions made by senior management responsible at the time. This case highlights the importance of firms prioritising the fair treatment of customers, and placing customer needs and expectations at the heart of their governance and culture.”
Meanwhile Cigna NZ chief executive Gail Costa said in a statement: “We’d like to acknowledge the recent announcement released by the Financial Markets Authority that Cigna New Zealand has admitted to breaching Section 22 of the Financial Markets Conduct Act 2013 for the historical application of indexation in some of our life insurance policies.
“This issue impacts some Cigna policies that were in-force prior to the purchase of OnePath, the majority of which are no longer on sale. The Assurance Extra product range is not impacted.”
Costa added that they have been contacting impacted policyholders since the issue was discovered. “The FMA has acknowledged that it was not our intention to mislead customers,” she said. “We’ve kept the FMA informed of everything we’ve done, and we’re pleased that our customers continue to see the value of the services we provide.”