A High Court judge has told general insurer AA Insurance (AAI) that its customers should feel secure that insurance premiums will be charged, and discounts applied, “in accordance with policy terms and as represented in marketing material”.
Justice O’Gorman said the firm breached section 22 of the Financial Markets Conduct Act by not billing customers correctly, and imposed a penalty with a starting point of $9.5m. A discount of 35% was applied, leaving the insurer to pay $6.175m.
The case against AAI was brought by the FMA, who said the firm misled customers about its multi-policy discount offer in marketing material and misrepresented that certain eligible customers would receive its guaranteed no claims bonus for life.
AAI admitted its conduct, which resulted in more than $11m in overcharges, primarily out of failure and deficiencies in the firm’s systems and processes.
In her decision, Justice O’Gorman said: “Customers cannot be expected to double check the precise details of transactions. They are entitled to trust the accuracy of their insurer’s systems and processes.”
Customers cannot be expected to double check the precise details of transactions…
Margot Gatland, FMA Head of Enforcement, said: “The $6.175 million penalty against AAI reflects the sheer scale of customers affected and level of harm caused.
“AAI’s systems proved to be inadequate and its marketing was not kept in line with internal policies.
“This judgment sends a strong message to the industry that companies need to ensure their systems and processes are fit for purpose and customers’ interests put first.”
The court found AAI had misled some customers about its multi-policy discount in marketing material between 2015 and 2020.
While its material represented existing policy holders who added another policy would receive the discount immediately, AAI’s systems were set up to apply the discount only once the original policy was up for renewal.
…the insurer failed to apply a discount promised to its members…
Separately, AAI failed to apply the multi-policy discount to some customers’ invoices. The issue affected 112,463 customers, who were overcharged almost $5m.
The court also found the insurer failed to apply a discount promised to its members, which affected more than 90,000 customers, who were overcharged almost $3m.
And the court held AAI overcharged almost 18,000 customers more than $3m after it failed to apply its guaranteed no claims bonus benefit on its comprehensive car insurance policies.
In addition, AAI misrepresented that eligible customers would receive its guaranteed no claims bonus for life. Until December 2011, the firm offered the bonus for each customer’s lifetime, providing the customer remained insured with AAI.
After that date, the benefit was amended so the bonus was applicable to the life of each customer’s policy only. However, some of AAI’s marketing continued to use the same ‘for life’ language without limitation.
Michelle James, CEO AA Insurance, says the judgment stems from previously reported system and process errors.
“We have apologised for the errors made and between 2020-2022, carried out comprehensive remediation programmes to fully refund more than $15.6m to past and present customers, including with interest.
“We self-reported to the Financial Markets Authority and have worked cooperatively with them throughout the process. ”