INDUSTRY NEWS: AA Insurance to pay $6.175 million penalty for misleading customers

AA Insurance New Zealand Limited (AAI) has been ordered to pay a penalty of $6.175 million for failing to apply multi-policy and membership discounts, as well as guaranteed no claims bonuses. AAI 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. The High Court judgment follows proceedings brought by the Financial Markets Authority (FMA).

AAI admitted its conduct, which resulted in approximately $11.12 million in overcharges, breached section 22 of the Financial Markets Conduct Act (FMC Act). The breaches primarily arose out of failure and deficiencies in its systems and processes.

The High Court found that AAI had misled some customers about its multi policy discount in marketing material between 2015 and 2020. While AAI’s marketing material represented existing policy holders who added another policy would receive the discount immediately, AAI’s systems were set up to apply the discount only once the original policy was up for renewal. Separately, AAI also failed to apply the multi policy discount to some customers’ invoices. The issue affected 112,463 customers, who were overcharged a total of approximately $4.89 million.

The Court also found AAI failed to apply a discount promised to NZAA members, which affected 90,129 customers, who were overcharged a total of approximately $2.95 million. And the Court held AAI overcharged 17,973 eligible customers approximately $3.28 million after it failed to apply its guaranteed no claims bonus benefit on its comprehensive car insurance policies.  In addition, AAI misled customers in its marketing.  AAI misrepresented that 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 that 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 O’Gorman declared AAI breached section 22 and imposed a pecuniary penalty with a starting point of $9.5 million, a discount of 35% and a final penalty of $6.175 million.

In her decision, Justice O’Gorman 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, said: “The $6.175 million penalty against AAI reflects the sheer 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. 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.”