AA Insurance becomes latest insurer facing court action

AA Insurance has become the latest insurer to face court action for overcharging customers.

The Financial Markets Authority Te Mana Tātai Hokohoko (FMA) has filed civil proceedings against AA Insurance for overcharging more than 100,000 customers.

The FMA is seeking a declaration from the High Court in Auckland that the insurer breached the Financial Markets Conduct Act by misleading customers and overcharging them by $11.12 million in failures going back as far as 2005.

Margot Gatland, the FMA’s head of enforcement, said the action against AA Insurance was the seventh civil case the FMA had brought under the fair dealing provisions of the FMC Act since June 2020.

Just last week, the FMA filed proceedings at the High Court in Wellington against Medical Assurance Society for “fair dealing” law breaches that left customers out of pocket.

All seven cases involved system errors and process failures, Gatland said.

AA Insurance chief executive Michelle James apologised to customers, and said customers had been refunded money they were overcharged.

“We want to reassure all our customers that we have further strengthened the way we monitor our systems and processes,” James said.

Gatland defended the decision to file proceedings despite insurers self-reporting their failures, and repaying customers.

“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,” she said.

The FMA alleges that between 2015 and 2020, AA Insurance’s marketing material said existing policyholders who added another policy would receive the multi-policy discount immediately.

However, AA Insurance’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 the insurer failed to apply the multi-policy discount to customers’ invoices.

Combined, the two failures meant 112,463 customers were overcharged $4.89m on their premiums, the FMA said.

The insurer also failed to apply AA membership discounts on the premiums of some eligible customers between 2014 and 2020.

This led to 112,613 customers being overcharged a combined $2.95m, the FMA claims.

And, between 2005 and 2015, the insurer overcharged 17,973 customers $3.28m on their premiums by failing to apply its “guaranteed no-claims bonus benefit” on its comprehensive car insurance policies.

The errors were first discovered in an internal AA Insurance audit in 2018, and an internal “investigation” in 2019.

The FMA said AA Insurance reported the issues to it in 2020 and 2021.

It was a period in which the FMA and Reserve Bank Te Pūtea Matua had put insurers under the spotlight with a Conduct and Culture review of insurers.

In 2018, the FMA published a conduct review of banks following revelations in Australia that some banks and insurers had been mistreating customers, leading to fears the same thing had been happening in New Zealand.

The bank review was followed in January 2019 with a damning report on the conduct of life insurers, with general insurers like AA Insurance the next sector in the regulators’ sights.

The joint FMA/Reserve Bank review of general insurers led to many insurers discovering they had made mistakes, resulting in them overcharging customers.

The closer scrutiny of banks and insurers led to a series of prosecutions, and tens of millions in refunds being paid to wronged customers.

In October last year, the FMA said banks and insurers had handed back about $150m​ to more than a 1.5 m​illion customers since regulators began in 2018 to demand regular reports on their mistakes.

ANZ and Cigna were among the companies which admitted misleading customers, including charging some for insurance they could not realistically make claims on, and double-charging others.

Kiwibank is also facing court action. The FMA alleges it misled about 35,000​ home loan customers, who were told they wouldn’t be charged transaction fees on their accounts, if they had home loans with the bank.

ASB had to repay about $8.9​m to borrowers whom it accidentally overcharged when they broke their fixed-term home loans between April 2005 and December 2016.

It also had to make about $8.1m in compensation payments to about 73,000​ borrowers who had home loans and personal loans with the bank between June 2015 and July 2019​.