AA Insurance has been ordered to pay a penalty of almost $6.2 million for overcharging tens of thousands of customers by a total of more than $11 million.
The FMA filed civil proceedings in the High Court at Auckland against AA Insurance over those charges in June last year.
AA Insurance is a joint venture between the New Zealand Automobile Association (NZAA) and Vero Insurance NZ. Vero is part of Suncorp NZ’s business.
According to the FMA on Monday, AA Insurance was found to have failed to apply multi-policy and membership discounts and guaranteed no claims bonuses as well as misleading its customers in marketing material about the insurer’s multi-policy discount offer.
AA Insurance also “misrepresented” that certain eligible customers would receive its guaranteed no claims bonus for life, the market watchdog said.
The High Court found AA Insurance had misled some customers about the insurer’s multi-policy discount in marketing material in the time period of 2015 to 2020.
“While AA Insurance’s marketing material represented existing policyholders who added another policy would receive the discount immediately, AA Insurance’s systems were set up to apply the discount only once the original policy was up for renewal,” the FMA said.
“Separately, AA Insurance also failed to apply the multi policy discount to some customers’ invoices. The issue affected 112,463 customers, who were overcharged a total of approximately $4.89 million.”
The FMA said AA Insurance had admitted its conduct which breached section 22 of the Financial Markets Conduct (FMC) Act.
The breaches primarily arose out of failure and deficiencies in its systems and processes and resulted in $11.12 million of overcharges.
The High Court also found AA Insurance failed to apply a discount promised to NZAA members – which affected a total of 90,129 customers, who were overcharged approximately $2.95 million .
On top of that, the insurer was found to have overcharged 17,973 eligible customers approximately $3.28 million after AA Insurance failed to apply its guaranteed no claims bonus benefit on its comprehensive car insurance policies.
“In addition, AAI misled customers in its marketing. AAI misrepresented that eligible customers would receive its guaranteed no claims bonus ‘for life’. Until December 2011, AAI offered the bonus for each customer’s lifetime, providing the customer remained insured with AAI. After that date, the benefit was amended so that 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,” the FMA said.
Justice Laura O’Gorman imposed a pecuniary penalty with a starting point of $9.5 million, a discount of 35% and a final penalty of $6.175 million after declaring that AA Insurance had breached section 22 of the FMC Act.
In the judgment, Justice O’Gorman said customers couldn’t be expected to double check the precise details of transactions.
“They are entitled to trust the accuracy of their insurer’s systems and processes,” she said.
FMA head of enforcement Margot Gatland said the penalty against AA Insurance reflected the “sheer scale” of the level of harm caused and customers affected.
“AA Insurance’s systems proved to be inadequate and its marketing was not kept in line with internal policies,” she said.
“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.”
AA Insurance chief executive Michelle James said the insurer had apologised for the “errors made” and carried out a remediation programme between 2020 and 2022 to fully refund more than $15.6 million to past and present customers with interest.
“We self-reported to the Financial Markets Authority (FMA) and have worked cooperatively with them throughout the process,” she said. “We are committed to being better and are confident that today we have stronger systems and processes in place, which we continue to build on.”
5 Comments
Ah! Multi-policy and membership discounts!
When I was nipper developer, the marketing department said our company must have this. We frantically worked 15 hours a day to design what they requested with many, many hours spent in the business units filling in the multitude of functional gaps in the marketing department's grand vision. We then went back to the marketing department with the cost and the numerous changes to their vision the business insisted upon.
It died a death.
It sounds simple, but in practice it's quite tricky. And describing it using extremely small print in marketing material still takes up heaps of space.
This will reflect badly on ConsumerNZ who have always rated AA Insurance highly. This begs the question as to how much credence do we allow NZ Consumer's ratings of the many and various subjects they claim to fairly appraise.
This FMA outcome certainly gives me pause because I have had my insurances with them for many years. I think that I have been trusting with my AA Insurances because I have always been impressed with the AA Emergency Road Service which have got me out of a jam a few times over past decades; my only gripe, a minor one, would be that the AA emergency persons (all Indian it seems today) stop trying to sell me a new battery when I only need a 'jump start' for having accidentally left my lights on while I go shopping on a winter's evening.
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