The High Court of New Zealand has issued AA Insurance (AAI) with a NZ$6.175 million penalty for its failure to pass on multi-policy and membership discounts as well as guaranteed no claims bonuses to customers.
Collectively, AAI was found by the Court to have overcharged its customers approximately NZ$11.12 million (AU$10.04 million), with the insurer’s failure to pass on promised discounts attributed to “failures and deficiencies in its systems and processes” as well as misleading marketing claims.
The independently operated AA Insurance is a joint venture between the New Zealand Automobile Association (NZAA) and the Suncorp-owned Vero New Zealand. The insurer counts around half a million customers and more than one million policies issued, which it also underwrites.
The Court also agreed with the plaintiff, the Financial Markets Authority (FMA), that, between 2015 and 2022, AAI 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”.
“While AAI’s marketing material represented existing policyholders 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,” the FMA stated.
The regulator argued that the promised ‘lifetime’ bonuses, advertised in marketing material, were applied only to the lifetime of the policy.
“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.”
Separately, AAI also failed to apply the multi-policy discount to some customers’ invoices.
The issue affected 112,463 customers, with the insurer found to have overcharged these customers approximately NZ$4.89 million.
The Court also found AAI failed to apply a promised discount to NZAA members, affecting 90,129 customers, who were overcharged a total of approximately NZ$2.95 million.
AAI also overcharged 17,973 eligible customers approximately NZ$3.28 million after it failed to apply its guaranteed no claims bonus benefit on its comprehensive car insurance policies.
In handing down 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, added: “The NZ$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.”
