FMA seeks penalty against AA Insurance over overcharges

Proceedings filed in the High Court in Auckland

FMA seeks penalty against AA Insurance over overcharges

Insurance News

By Terry Gangcuangco

The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko has accused AA Insurance Limited (AAI) of violating the Financial Markets Conduct Act (FMC Act) and wants the insurer to be penalised.

Filing civil proceedings in the High Court in Auckland, the FMA cited three failures on the part of AAI.

The regulator noted in a release: “The FMA alleges AAI breached section 22 of the Financial Markets Conduct Act by misleading customers about its multi-policy discount offer in marketing material between 2015 and 2020. The marketing material represented existing policyholders who added another policy would receive the multi-policy discount immediately.

“However, AAI’s systems were set up to apply the discount once the original policy was up for renewal, rather than immediately. In addition, the FMA alleges AAI failed to apply the multi-policy discount to customers’ invoices. As a result of both issues, 112,463 customers were overcharged $4.89 million on their premiums.

“The FMA also alleges AAI failed to apply NZAA (New Zealand Automobile Association) membership discounts on the premiums of some eligible customers between 2014 and 2020. Since 1994, AAI has offered its customers a discount on their premiums if they also held a NZAA membership. The FMA claims AAI did not correctly apply the discount to the invoices of approximately 112,613 eligible customers, resulting in $2.95 million in overcharged premiums.”

Additionally, it was alleged that 17,973 eligible customers were overcharged $3.28 million on their premiums between 2005 and 2015. This was attributed to AAI’s supposed failure to apply its guaranteed no-claims bonus benefit on comprehensive car insurance policies.

According to the watchdog, AAI failed to apply multi-policy discounts, NZAA membership discounts, and guaranteed no-claims bonuses due to errors in the insurer’s sales and fulfilment systems, incorrect data entry by employees, and deficiencies in policy administration systems.

The FMA, which has now brought seven civil proceeding cases against companies under the FMC Act’s fair dealing provisions since June 2020, is seeking a declaration from the court that AAI contravened section 22 on all three matters and that a pecuniary penalty be paid to the Crown for the breaches.

Response from AA Insurance

In an emailed statement, the insurer said: “AA Insurance identified the issues as part of its regular and ongoing internal reviews and self-reported them to the FMA. AA Insurance has since corrected the issues and completed comprehensive remediation programmes involving refunds to customers, plus interest.”

Meanwhile chief executive Michelle James, who called the issues “historical,” reiterated the apology AAI has made to those who were overcharged.

James said: “We accept there were aspects of our processes which weren’t perfect, and we’ve put our customers at the heart of our response to these issues. Late last year, we completed the comprehensive remediation programmes to put things right for our customers. 

“When the issues were first identified, we took great care to identify the cause and the number of customers impacted. We proactively self-reported to the FMA, we fixed the issues, and made every effort to contact affected customers to apologise and provide refunds. We have worked closely with the FMA throughout the remediation process, providing them with regular updates.”

The CEO went on to reassure policyholders that systems and processes monitoring has been further strengthened and that the insurer is investing in its operational and customer-facing systems to improve customer experience.  

“We take our relationship with customers very seriously – it’s something that is consistently demonstrated in the mix of independent awards and accolades we receive and was evident in our decision to issue $19.5 million in rebates to customers in August 2020 due to the reduced likelihood of motor insurance claims during the COVID-19 lockdown period,” the chief executive added.

“AA Insurance remains committed to being open, honest, and transparent with our customers and living up to our reputation as one of New Zealand’s most trusted companies.”

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