Life insurer AIA penalised $700k for misleading customers

The High Court in Auckland ordered the penalty. Photo / Nick Reed

Life insurance company AIA must pay $700,000 for false and misleading representations to customers.

The Auckland High Court ordered the penalty after the Financial Markets Authority took action.

The insurer said it self-disclosed relevant issues to the FMA more than four years ago.

The authority said AIA admitted to the conduct last year in court.

Both parties agreed a penalty of $700,000 reflected the seriousness of the breaches.

The FMA said for some customers AIA's conduct will likely have caused emotional harm as well as direct financial harm.

Some customers were declined disability, income replacement and other health-related cover which was only available in inherently stressful circumstances, the FMA said.

The FMA said it wanted to denounce the misconduct, and hold AIA accountable for breaches and any harm caused to 383 affected customers.

The regulator said these customers were overcharged or had claims underpaid by more than $413,000.

"The FMA also wanted to deter financial institutions from having deficient processes or systems," the regulator said today.

Justice Michael Robinson said AIA had breached fair dealing provisions in the Financial Markets Conduct Act 2013.

And he said AIA made false and/or misleading representations in relation to customers' insurance policies.

"This outcome reiterates that financial institutions will be held to account if they fail to sufficiently invest in systems, controls and processes that ensure all customers are treated fairly," FMA head of enforcement Margot Gatland said.

The regulator said AIA accepted customers should be able to rely on the robustness of their insurer's systems.

"AIA's misconduct caused real harm by failing to correctly pay cover to a small number of sick or disabled customers," Gatland added.

The authority said AIA wrongly told certain customers they were entitled to passback benefits without clarifying that the benefits only applied to post-2003 policies.

It said AIA also kept charging premiums when customers had no cover.

"Letters were sent to certain customers with policies approaching the end of their duration, specifying when cover would cease, but the letters contained the incorrect date."

The regulator said AIA had since made significant investment to ensure these issues did not reoccur.

"After conducting an internal review, we found a small number of instances where we may have fallen short of our own standards and commitment to being as transparent as possible with our customers," AIA said today.

The company said it disclosed issues to the FMA in June 2018 at the start of a joint FMA/Reserve Bank conduct and culture Review.

"Since self-disclosing these issues to the FMA, we have worked relentlessly to remediate these complex issues, whilst engaging and cooperating with the FMA throughout."

The company's chief executive Nick Stanhope said AIA New Zealand worked swiftly with the FMA to reach a resolution in July 2021, before the court hearing earlier this year.

"Our customer remediation process was completed over a year ago and, if a customer was impacted by one of the issues, they have already heard from us directly and we have put the issue right."