The Wellington High Court has ordered Cigna Life Insurance NZ to pay $3.575 million for making false and/or misleading representations relating to inflation benefits in certain life insurance policies.
RiskinfoNZ reported in August that Cigna had admitted (see here) to breaching the Fair Dealing provisions of the Financial Markets Conduct Act 2013 (FMC Act), following proceedings brought by the FMA.
The case proceeded to a penalty hearing in October 2022, where the parties made submissions on the appropriate amount for a penalty. Justice Mallon has now issued her judgment.
The case relates to Cigna’s communication of, and charging for, inflation benefits (indexation) to customers holding 52,363 policies between between 1 April 2014 (when the FMC Act came into force) and early 2019.
From early 2013 until early 2019, Cigna increased customers’ premiums and cover under indexation benefits, on a variety of life insurance policies, using flat rates of indexation that significantly exceeded the CPI.
Cigna charged around $13.5 million in additional premiums for the increased cover that it provided. However, its “net gain” was around $4.5 million because it paid out around $6 million in additional claims relating to the additional premiums, $1.8 million in third-party commissions, and assessed $1.15 million in additional premium reserves. Cigna says its net gain will continue to reduce as future claims are paid out.
Justice Mallon said that while customers obtained increased cover from Cigna’s conduct, it is not for the firm to decide this for customers without being clear and transparent about the basis for the increasse.
“Cigna’s conduct was not the result of a systems error,” she said. “It was the result of decisions made by senior management.”
The penalty against Cigna is the largest the FMA has secured in an enforcement case.
In a statement, Cigna says an internal company review in 2019 identified issues related to the wording of indexation clauses in some of its life insurance policies.
“The company self-reported the issues to the FMA and initiated proactive remediation for our customers, who were offered the option of a refund and lower cover,” said a Cigna spokesperson.
“Details of the remediation were shared with the FMA, which has acknowledged our full cooperation in this matter and that it was not our intention to mislead customers.
“More than three in four customers contacted by the company have chosen to keep their indexed cover. With the judgment of the court, this matter has been resolved.”
To date, Cigna has repaid more than $10.7 million (including interest) of additional premiums to customers through its remediation programme.
Following consultation with the FMA, Cigna agreed to send further letters to certain customers who chose to maintain a higher level of cover, rather than a refund, to advise them of the FMA’s investigation and Cigna’s admissions.
Read the full judgment here.