New Zealand’s chief financial regulator, the Financial Markets Authority (FMA) will sue Vero Insurance in the Auckland High Court for an alleged breach of fair dealing provisions, resulting in customers being overcharged NZ$8.7 million (AU$7.8 million).
The regulater has claimed that the Suncorp Group-owned Vero misled customers by falsely offering discounts for multi-policy premiums – where a customer has more than one insurance product (for instance, home and contents, vehicle, or boat insurance) listed under one policy.
Vero, according to the FMA, failed to apply the promised discounts due to “errors and deficiencies” in its systems.
As a result, it has urged regulated entities to improve auditing and control systems to prevent similar breaches from occurring.
It is alleged that between April 2014 and May 2022 Vero and its intermediaries issued invoices to approximately 47,000 customers with incorrect premiums.
Vero reported the issue to the FMA in December 2019, several months after engaging in a remediation program.
While the issue reportedly dates back to 2009, the FMA confirmed that regulatory action could only be enforced after the introduction of the Financial Markets Conduct (FMC) Act (2014) – which regulates fair dealing provisions – enacted in April 2014.
Vero has attributed its failure to apply the promised discounts to “errors and deficiencies in its systems”, including data entry errors by employees and some intermediaries offering their policies.
The FMA’s head of enforcement Margot Gatland alleges Vero was aware of issues with the systems as far back as 2010; however, she added, the insurer had ultimately “failed to recognise [the] magnitude” of these errors.
“The scale of customer harm caused by Vero’s system failures is significant and we consider Vero was slow to investigate the issue, despite even being pressured at one point by one of its intermediaries,” Gatland said.
“Vero’s systems were open to manual error and it had no audit system to pick up these errors.
“By filing this case, we are sending a strong message that financial services firms must invest in robust systems and controls.”
The FMA acknowledged that the insurer has reimbursed more than $10 million in overcharges to affected policyholders and has been cooperative throughout the investigation; nevertheless, Gatland says it will continue to pursue the court case to “[send] a strong message that financial services firms must invest in robust systems and controls”.
New Zealand’s financial regulators are moving to crack down on issues requiring remediation. As part of a recent Conduct and Culture review by FMA and the Reserve Bank of New Zealand (RBNZ), the regulators found that NZ banks and life insurers have returned upwards of $150 million to customers as a result of remediation action between 2018-2019.
The life insurance sector alone returned $43 million due to “creaking systems and weak controls” that impacted nearly half a million customers, the review found.