The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko - has filed civil proceedings against AA Insurance Limited (AAI) for failing to apply multi policy and membership discounts, as well as guaranteed no claims bonuses to eligible customers' premiums, resulting in $11.12 million in overcharges.
The FMA alleges AAI breached section 22 of the Financial Markets Conduct Act (FMC Act) by misleading customers about its multi policy discount offer in marketing material between 2015 and 2020. The marketing material represented existing policy holders who added another policy would receive the multi policy discount immediately. However, AAI's systems were set up to apply the discount once the original policy was up for renewal, rather than immediately. In addition, the FMA alleges AAI failed to apply the multi policy discount to customers' invoices. As a result of both issues, 112,463 customers were overcharged $4.89 million on their premiums.
The FMA also alleges AAI failed to apply NZAA membership discounts on the premiums of some eligible customers between 2014 and 2020. Since 1994, AAI has offered its customers a discount on their premiums if they also held a NZAA membership. The FMA claims AAI did not correctly apply the discount to the invoices of approximately 112,613 eligible customers, resulting in $3.12 million in overcharged premiums.
Furthermore, the FMA claims that between 2005 and 2015, AAI overcharged 17,973 eligible customers $3.28 million on their premiums after it failed to apply its guaranteed no claims bonus benefit on its comprehensive car insurance policies.
All three failures were due to errors in AAI's sales and fulfilment systems, incorrect data entry by its employees and deficiencies in its policy administration systems. Some errors were caused by customers taking out policies online, where they did not tick a box confirming they held another policy or a NZAA membership. However, AAI did not have the reporting in place to identify those customers and ensure that the discounts were being applied correctly.
A 2018 audit identified potential failings in the application of the multi policy and membership discounts and a 2019 investigation by AAI revealed the full scale of the issues.
AAI notified the FMA of the multi policy and membership discount issues in February 2020 while the guaranteed no claims bonus issue was reported in June 2021.
Margot Gatland, FMA Head of Enforcement, said: "This is the seventh civil proceeding case the FMA has brought under the fair dealing provisions of the FMCA, since June 2020. All these cases point to system errors and process failures that for the most part date back prior to 2014, when the FMC Act came into effect. While we have acknowledged in each case the efforts companies have made to remediate customers for these issues, the length of time taken to identify and resolve the mistakes in the first place was a key factor in commencing civil court action."
The FMA is seeking a declaration from the court that AAI contravened section 22 of the FMC Act on all three matters and that AAI pay a pecuniary penalty to the Crown for the breaches.
The proceedings were filed in the High Court in Auckland.
