Biggest-ever penalty for Cigna over false and misleading claims about customers’ insurance premiums

The fine imposed on Cigna in the High Court at Wellington is the biggest the FMA has secured in an enforcement case. Photo / 123RF

Life insurer Cigna has been told to pay a $3.5 million penalty for misleading people about its policies.

The Financial Markets Authority (FMA) said the Wellington High Court handed down a $3.575m fine to Cigna for making “false and/or misleading representations” about inflation benefits in some life insurance policies.

From early 2013 until early 2019, Cigna increased customer premiums and cover under indexation benefits on various policies.

When doing so, it used rates that greatly exceeded the Consumers Price Index and were not in line with fixed rates contained in customers’ policies, as was required under the relevant policies.

“The $3.5 million penalty against Cigna is the largest the FMA has secured in an enforcement case, which reflects the level of harm caused by this issue,” the authority’s head of enforcement Margot Gatland said today.

“Cigna’s conduct affected many of its customers, who trusted the firm to be transparent and look after their interests.

“This judgment sends a strong message to the industry that firms need to give due regard to customers’ interests, including when making pricing changes and communicating them.”

The case relates to Cigna’s communication of, and charging for, inflation benefits or “indexation” to customers holding 52,363 policies between April 2014 and early 2019.

“The company communicated these changes to customers on an opt out basis, through annual policy notification letters.” the FMA said.

“Indexation is commonly offered on insurance policies to give customers the option of having their insurance cover (sum insured) increasing annually to keep up with inflation,” the FMA added.

“Indexation is beneficial to many customers because it helps to ensure their cover is not reduced by the impact of inflation.”

Cigna charged about $13.5 million in additional premiums and made a net gain of about $4.5 million, because it paid out roughly $9 million in additional claims relating to additional premiums, in third-party commissions, and assessed $1.15 million in additional premium reserves.

Cigna said its net gain will reduce as future claims are paid out.

“While customers obtained increased cover from Cigna’s conduct, it is not for Cigna to decide this for customers without being clear and transparent about the basis for the increase,” Justice Jillian Mallon said in the judgment.

“Cigna’s conduct was not the result of a systems error. It was the result of decisions made by senior management.”

Cigna self-reported the issue and co-operated with the FMA.

The FMA said Cigna also agreed to admit to contraventions and settle, adopt process improvements, and carry out a substantial remediation programme.

Cigna self-reported the issue in 2019, after the final report of the FMA and Reserve Bank of New Zealand (RBNZ) life insurance conduct and culture review.

FMA said Cigna had already repaid more than $10.7 million, including interest, of additional premiums to customers through its remediation programme.

The Herald asked Cigna if the decision would be appealed.

“With the judgment of the court, this matter has been resolved,” a Cigna spokesman said.

“The company self-reported the issues to the FMA and initiated proactive remediation for our customers, who were offered the option of a refund and lower cover,” he added.

Cigna said the FMA had already acknowledged Cigna had no intention to mislead customers.

“More than three in four customers contacted by the company have chosen to keep their indexed cover,” he added.