Medical Assurance Society New Zealand (MAS) has been ordered to pay a pecuniary penalty of $2.1 million for making false and/or misleading representations to some customers, following proceedings brought by the FMA.
The mutual society has repaid affected customers just over $6.1 million as part of its remediation programme.
In September 2023, MAS admitted it breached section 22, one of the Fair Dealing provisions of the Financial Markets Conduct Act 2013 (FMCA), by failing to correctly apply multi-policy discounts and no claims bonus discounts to some customers who were entitled to them, failing to correctly apply inflation adjustments on some customer policies, and miscalculating benefit payments.
At the penalty hearing on Tuesday 21 November, his Honour Justice Churchman declared MAS breached section 22 of the FMC Act.
FMA Head of Enforcement Margot Gatland said: “MAS’s breaches were widespread across the whole of its insurance business due to fundamental flaws in the design of MAS’s systems and processes, which overtly relied on manual processes with no detective controls.
“The issues caused considerable harm to a significant number of MAS’s customers, being more than 16,000 across all issues, and the harm caused by the benefits payment issue affected customers who were at particularly vulnerable times in their lives. While a relatively small insurer by market standards, the net gain MAS made from its breaches was significant.”
Click here to download the judgement.
Background
Between 2014* to 2022, MAS:
- Did not apply the multi-policy discount or incorrectly applied a lower rate of the discount to premiums owed by some eligible customers. This issue affected approximately 8,864 customers, with approximately $3,318,997 in overcharged premiums
- Applied an inflation adjustment of 3%, instead of the inflation adjustment specified in policies of customers who had elected to receive an inflation adjustment. This issue affected approximately 6,267 customers, with approximately $1,714,067 in overcharged premiums
- Made various errors when manually calculating a customer’s benefit payments. These errors resulted in some customers receiving lower benefit payments than they otherwise would have if the errors had not occurred. This issue affected approximately 104 customers, with approximately $1,047,059 in underpayments
- Did not apply the correct no claims bonus grade to premiums owed by some eligible customers. This issue affected approximately 1,235 customers, with approximately $572,061 in overcharged premiums
The root cause of the breaches was related to errors and deficiencies in MAS’s systems and processes, which relied largely on manual processes.
MAS self-reported the issues to the FMA between 2019 and 2022, including reporting one of the issues as part of the FMA and Reserve Bank of New Zealand’s Conduct and Culture reviews. MAS was aware of the multi-policy discount issue from at least 2014 but no steps were taken to investigate until the issue was rediscovered in 2019.
*At least one issue dated back to 2009 but the FMA’s claim only applies to MAS’s conduct from April 2014 onwards, which is the date the FMC Act came into force.