Life insurer AIA fined $700,000 for misleading customers

Life insurer AIA has been ordered to pay a $700,000 penalty by the High Court in Auckland after admitting it misled some customers.

The Financial Markets Authority Te Mana Tātai Hokohoko took a case against AIA, alleging the insurer’s failures included charging premiums to some people who had no cover, and not paying some claims it should have accepted.

AIA reported the breaches itself to the FMA, as part of a review of life insurers by the authority and the Reserve Bank in 2018, and admitted breaching the “fair dealing” provisions of the Financial Markets Conduct Act.

Affected customers had already received restitution payments from the insurer, but the FMA considered the seriousness of the breaches, and the length of time it had taken to deal with impacted customers, warranted enforcement action.

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Margot Gatland, FMA head of enforcement, said: “This outcome reiterates that financial institutions will be held to account if they fail to sufficiently invest in systems, controls and processes that ensure all customers are treated fairly.

“AIA accepted customers should be able to rely on the robustness of their insurer’s systems. AIA’s misconduct caused real harm by failing to correctly pay cover to a small number of sick or disabled customers.”

The FMA said in some cases AIA continued to charge premiums when customers had no cover.

The insurer also wrongly ceased cover for certain customers while their policies remained in force, which resulted in some customers, whose claims had been accepted, being underpaid on those claims, the FMA said.

AIA also raised the premiums on some policyholders who had opted for annual inflation-linked increases in their cover by more than inflation.

Gatland said the FMA case only captured breaches that occurred after April 1, 2014 when the Financial Markets Conduct Act came into force.

Nick Stanhope, AIA’s New Zealand chief executive, said the case involved “historical issues”, which the insurer had self-disclosed to the FMA in June 2018 when the regulator started its review of insurance company conduct.

“After conducting an internal review, we found a small number of instances where we may have fallen short of our own standards and commitment to being as transparent as possible with our customers,” he said.

All customers who had been wronged had been paid back.

“Our customer remediation process was completed over a year ago and, if a customer was impacted by one of the issues, they have already heard from us directly, and we have put the issue right,” Stanhope said.

Just last week, a conference of insurers in Auckland heard insurers had now paid more than $43 million​ in remediation for bad behaviour to half-a-million​ customers in the four years since the FMA’s crackdown began.

Speaking at the Financial Services Council conference in Auckland, Clare Bolingford, the FMA’s director for banking and insurance said: “In that time – almost four years – 225 such issues have been reported to us involving life insurers, many the result of creaking systems and weak controls.”

But, she said, more restitution from insurers might yet be paid as just one-third of the issues found had been fully assessed.