FMA Files Civil Proceedings Against IAG For Fair Dealing Breaches

The Financial Markets Authority – Te Mana Tātai Hokohoko – has filed a civil proceeding against insurer IAG New Zealand Limited (IAG) for fair dealing breaches in relation to its insurance products. The proceeding has eight causes of action relating to 11 alleged breaches of section 22, under Part 2 of the Financial Markets Authority Act (FMCA) - 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.

IAG self-reported the issues following the FMA’s Conduct and Culture reviews of banks, life insurers, and fire and general insurers.

FMA Head of Enforcement, Margot Gatland, said: “The scale of IAG’s fair dealing breaches is extensive, impacting its core business. IAG is New Zealand’s largest general insurer, including in the personal lines insurance market. Its distribution model relies on its brands and distribution partners, which reinforces the importance of the reliability of its systems.

“IAG’s exemplary conduct in response to the FMA’s investigation must also be acknowledged. IAG’s self-reporting was followed by its very early admission of liability, and its full cooperation including its commitment to an undefended proceeding. IAG worked closely with the FMA by way of proactive assistance in support of the efficiency of the investigation, in addition to providing regular updates as to its full customer remediation and its significant system upgrades designed to prevent further breaches.”

Some of the issues date back more than 20 years, however, the FMA’s claim is limited to conduct from the introduction of the FMCA, which came into effect from April 2014. Approximately 269,000 customers were affected by the pleaded breaches, resulting in overcharges of approximately $35 million, with net gain to IAG of approximately $31.1 million.

The proceedings were filed in the High Court in Auckland.

Each cause of action can be found in the notes section below.

Notes

The eight pleaded causes of action address the following issues:

ASB multi policy discount issue

IAG inconsistently applied advertised multi policy discounts to customers who had purchased two or more of its ASB-branded policies. As a result, some eligible customers were overcharged premiums. Some customers holding caravan and trailer policies were also incorrectly advised that they were eligible for the MPD when they were not.

No Claims Bonus issue

Some customers entitled to a no claims bonus did not have the discount applied as intended, leading to premium overcharges. Some AMI customers also lost their entitlement to make two at fault claims per annum without impacting their no claims bonus.

Relatedly, when changes were made to some Westpac customers’ no claims bonus status, due to a systems error they were charged higher premium amounts than they had been quoted and invoiced.

Westpac Owner Occupier Discount issue

IAG customers with Westpac-branded policies for their owner-occupier home were entitled to a discount on any Motor Vehicle, Contents and Boat policies they also held. This was inconsistently applied. As a result, some eligible customers did not receive the discount.

Minimum Premium issue

Certain IAG Home, Contents, Vehicle and Boat policies were subject to a minimum premium applied via IAG’s pricing algorithms, which unintentionally prevented some customers from receiving some or all of the discounts otherwise available on their policies.

BNZ/Co-Op Multi Policy Discount issue

IAG customers with BNZ and Co-Op-branded Contents policies and at least one other Home or Motor policy from the same brand were entitled to a multi policy discount. Some eligible customers did not receive the discount, due to it being inconsistently applied. The eligibility criteria were also misrepresented on Co-Op’s website.

Multi-Dwelling issue

The number of dwellings insured on ASB and AMI Home policies determined the amount of Earthquake Commission (EC) and Fire Emergency NZ (FENZ) levies payable by the customers and impacts the premiums payable by AMI customers who added an extension to their policies. Due to errors as to the number of dwellings to be insured, some customers were overcharged EC/FENZ levies and AMI premiums.

Non-Optional Extension issue

BNZ and Co-Op-branded IAG Home policies included a non-optional extension for glass breakage. The cost of the non-optional extensions should have been included in the premium amount to which any available discounts were applied. IAG’s pricing algorithm instead treated them as optional extensions to which discounts did not apply, resulting in overcharges.

High Value and Tesla Vehicle Multi-Policy Discount issue

IAG’s representations conveyed that customers holding High Value and Tesla vehicle policies were entitled to a multi-policy discount on their premium in accordance the orthodox rules, when in fact different eligibility rules applied. Accordingly, some of those customers did not receive a multi policy discount in accordance with IAG’s representations.

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