Medical Assurance Society To Pay $2.1 Million Penalty For Making False And Misleading Representations To Customers

Medical Assurance Society New Zealand Limited (MAS) has been ordered to pay a pecuniary penalty of $2.1 million for making false and/or misleading representations to some customers, following proceedings brought by the Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko.

In September 2023, MAS admitted it breached section 22, one of the Fair Dealing provisions of the Financial Markets Conduct Act 2013 (FMCA), by failing to correctly apply multi-policy discounts and no claims bonus discounts to some customers who were entitled to them, failing to correctly apply inflation adjustments on some customer policies, and miscalculating benefit payments.

At the penalty hearing this week, his Honour Justice Churchman declared MAS breached section 22 of the FMC Act and imposed a pecuniary penalty with a starting point of $3 million, a discount of 30% and a final penalty of $2.1 million.

Justice Churchman stated: “The making of false and misleading representations, and any associated overcharging, undermines the purposes of the FMCA in promoting confident participation of consumers and facilitating the development of transparent financial markets. Customers are entitled to trust in the accuracy of their insurance provider’s communications in its systems but cannot do so where they must double check pricing and invoices (particularly where, as is the case here, customers could not verify whether amounts charged or benefits paid were correct).”

FMA Head of Enforcement Margot Gatland said: “MAS’s breaches were widespread across the whole of its insurance business due to fundamental flaws in the design of MAS’s systems and processes, which overtly relied on manual processes with no detective controls. The issues caused considerable harm to a significant number of MAS’s customers, being more than 16,000 across all issues, and the harm caused by the benefits payment issue affected customers who were at particularly vulnerable times in their lives. While a relatively small insurer by market standards, the net gain MAS made from its breaches was significant.”

Background

Between 2014* to 2022, MAS:

· Did not apply the multi-policy discount or incorrectly applied a lower rate of the discount to premiums owed by some eligible customers. This issue affected approximately 8,864 customers, with approximately $3,318,997 in overcharged premiums.

· Applied an inflation adjustment of 3%, instead of the inflation adjustment specified in policies of customers who had elected to receive an inflation adjustment. This issue affected approximately 6,267 customers, with approximately $1,714,067 in overcharged premiums.

· Made various errors when manually calculating a customer’s benefit payments. These errors resulted in some customers receiving lower benefit payments than they otherwise would have if the errors had not occurred. This issue affected approximately 104 customers, with approximately $1,047,059 in underpayments.

· Did not apply the correct no claims bonus grade to premiums owed by some eligible customers. This issue affected approximately 1,235 customers, with approximately $572,061 in overcharged premiums.

The root cause of the breaches was related to errors and deficiencies in MAS’s systems and processes, which relied largely on manual processes.

MAS self-reported the issues to the FMA between 2019 and 2022, including reporting one of the issues as part of the FMA and Reserve Bank of New Zealand’s Conduct and Culture reviews. MAS was aware of the multi-policy discount issue from at least 2014 but no steps were taken to investigate until the issue was rediscovered in 2019.

MAS has repaid affected customers $6,115,271 as part of its remediation programme.

Download the judgment

Notes

*At least one issue dated back to 2009 but the FMA’s claim only applies to MAS’s conduct from April 2014 onwards, which is the date the FMC Act came into force.

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