The Financial Markets Authority (FMA) is pursuing civil action against Insurance Australia Group’s (IAG’s) New Zealand, identifying systemic mispricing of premiums across a number of its insurance products.
The proceeding relates to 11 alleged breaches of the Financial Markets Conduct Act (FMCA) relating to “false or misleading representations”, with systems or algorithmic error blamed for a number of these infractions.
Approximately 269,000 customers were affected by the alleged breaches, resulting in overcharges of approximately $35 million. The FMA said IAG received a net gain of approximately $31.1 million from the more than decade of alleged mispricing.
The regulator alleges IAG failed to correctly price premiums and apply advertised policy discounts to customers. Further the FMA found the insurer had also failed to correctly advertise and apply discounts to insurance products sold via its business divisions and distribution partners.
While these issues date back “more than 20 years”, the FMA said, its civil action remains limited to the period after the introduction of FMCA (in April 2014).
The FMA is pursuing eight causes of action against IAG New Zealand, with many related to the inconsistent application of its promised policy discounts offered through distribution partners, including ASB, Westpac and BNZ.
FMA head of enforcement, Margot Gatland, said the scale of IAG’s fair dealing breaches is “extensive”, impacting its core business and distribution partners.
“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.
The FMA acknowledged that IAG self-reported the issues following the FMA’s Conduct and Culture reviews of banks, life insurers, and fire and general insurers and has displayed “exemplary conduct” in admitting the errors and engaging with the regulator on remediation.
“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,” Gatland said.
She added: “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.”
