News that FMG Insurance Limited and Farmers’ Mutual Group have admitted to fair dealing breaches around making misleading statements drew much reader interest this week…
FMG Insurance Limited and Farmers’ Mutual Group (together, FMG) has admitted to fair dealing breaches and, as well as remediating customers, has agreed to pay $2.1 million, according to the Financial Markets Authority.
The $2.1 million payment is in lieu of a pecuniary penalty, pursuant to an enforceable undertaking.
The regulator says in a statement that following an investigation by the FMA, FMG has admitted to making misleading representations in relation to certain of its insurance products, breaching fair dealing provisions of the Financial Markets Conduct Act.
It notes that the investigation followed a self-report by FMG and focused on two long running issues:
- Customers being charged for specified items that provided no additional insurance benefit
- Incorrect inflation adjustments applied to sums insured
FMA’s Head of Enforcement, Margot Gatland, says insurers must ensure their representations to customers about cover, premiums, adjustments, and policy benefits are accurate, clear, and consistent with policy terms.
“Following our investigation, we determined that FMG’s representations to customers were false or misleading and caused customer harm.”
Specified Items
The FMA states that between 2012 and 2024, some FMG customers with Household Contents policies were charged additional premiums for specified items even though those items were already covered under the general contents Sum Insured, meaning the specification provided no additional benefit.
It adds that from 1 April 2014 to 2024, 3,904 customers were affected, and have now been paid remediation of about $1,936,000 in overcharged premiums (including GST and use of money interest). FMG also made five claims top up payments totalling about $6,000 (including GST).
“FMG acknowledges that it made misleading representations about the need to specify items and the additional cover customers would receive,” breaching two sections of the FMC Act, the authority says.
Indexation
The FMA adds that between 2013 and 2024, FMG applied annual flat rate increases to certain customers’ maximum insurance limits (Sums Insured), even where policies suggested such adjustments would be inflation-based or no longer contained an inflation clause at all.
“These adjustments, which were inconsistent with policy wording, resulted in tens of thousands of customers being over or undercharged.”
It says a total of 54,642 customers were affected between 1 April 2014 and 2024, with around 26,000 customers due a refund as a result of overcharged premiums and 480 customers paid claim top up payments. FMG’s remediation for this issue totalled about $3,380,000 (including GST and use of money interest).
“FMG made representations in renewal statements that inflation adjustments had been applied and premiums calculated in accordance with the policy terms, and that FMG had the right to charge those amounts. FMG now admits these were false or misleading representations,” breaching three sections of the FMC Act.
…Gatland acknowledged FMG’s cooperation and its commitments outlined in the enforceable undertaking…
Gatland acknowledged FMG’s cooperation and its commitments outlined in the enforceable undertaking that it will strengthen systems and rewrite policy wording to prevent recurrence.
“The FMA will continue to prioritise fair customer outcomes and take action where misleading conduct occurs in the financial services sector,” she says.