FMA files court proceedings against AA Insurance for allegedly overcharging tens of thousands of customers

The Financial Markets Authority (FMA) says it has has filed civil proceedings in the High Court at Auckland against AA Insurance for allegedly overcharging tens of thousands of customers to the tune of $11.12 million.

The FMA alleges AA Insurance failed to apply multi policy and membership discounts, as well as guaranteed no claims bonuses to eligible customers’ insurance premiums. AA Insurance is joint venture between the New Zealand Automobile Association (NZAA) and Vero Insurance NZ.

AA Insurance's failures were due to errors in its sales and fulfilment systems, incorrect data entry by its employees and deficiencies in its policy administration systems, the FMA says. Some errors were caused by customers taking out policies online, where they didn't tick a box confirming they held another policy or an AA membership. However, AA Insurance didn't have the reporting in place to identify those customers and ensure discounts were being applied correctly, the FMA says.

The FMA says a 2018 audit identified potential failings in the application of the multi policy and membership discounts and a 2019 investigation by AA Insurance itself revealed the full scale of the issues. The insurer then notified the FMA of the multi policy and membership discount issues in February 2020, with the guaranteed no claims bonus issue was reported in June 2021.

"The FMA alleges AA Insurance breached section 22 of the Financial Markets Conduct Act by misleading customers about its multi policy discount offer in marketing material between 2015 and 2020. The marketing material represented existing policy holders who added another policy would receive the multi policy discount immediately," FMA Head of Enforcement Margot Gatland says.

"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 AA Insurance failed to apply the multi policy discount to customers’ invoices. As a result of both issues, 112,463 customers were overcharged $4.89 million on their premiums."

"The FMA also alleges AA Insurance failed to apply NZAA membership discounts on the premiums of some eligible customers between 2014 and 2020. Since 1994, AA Insurance has offered its customers a discount on their premiums if they also held a NZAA membership. The FMA claims AA Insurance did not correctly apply the discount to the invoices of approximately 112,613 eligible customers, resulting in $2.95 million in overcharged premiums," says Gatland.

"Furthermore, the FMA claims that between 2005 and 2015, AAI overcharged 17,973 eligible customers $3.28 million on their premiums after it failed to apply its guaranteed no claims bonus benefit on its comprehensive car insurance policies."

AA Insurance CEO reiterates apology to customers

For its part AA Insurance says it identified the issues as part of its regular and ongoing internal reviews and self-reported them to the FMA. It has since corrected the issues and completed comprehensive remediation programmes involving refunds to customers, plus interest.

 “We reiterate the apology we have made to all those affected by these historical issues," AA Insurance CEO Michelle James says.

“We accept there were aspects of our processes which weren’t perfect, and we’ve put our customers at the heart of our response to these issues. Late last year, we completed the comprehensive remediation programmes to put things right for our customers...We have worked closely with the FMA throughout the remediation process, providing them with regular updates."

James says AA Insurance has " further strengthened" the way it monitors its systems and processes and is investing in its operational and customer-facing systems to improve customers' experiences.

This is the seventh civil proceeding case the FMA has brought under the fair dealing provisions of the Financial Markets Conduct Act since June 2020. Gatland says all seven cases involve system errors and process failures that mostly pre-date back when the Act came into effect in 2014.

"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."

Gatland says the FMA is seeking a declaration from the Court that AA Insurance contravened section 22 of the Act on all three matters and that the insurer pay a pecuniary penalty to the Crown for the breaches.