The Financial Markets Authority is taking legal action against AA Insurance for allegedly overcharging its customers by $11 million

The Financial Markets Authority has launched civil proceedings against AA Insurance over alleged fair dealing violations that have resulted in customers being overcharged by $11.12 million. Photo / OneRoof

The Financial Markets Authority (FMA) has initiated civil proceedings against AA Insurance over alleged fair dealing violations that have resulted in customers being overcharged by $11.12 million.

The Financial Regulator has accused AA Insurance (AAI) of failing to apply multi-policy and membership discounts and guaranteed no-claims discounts to eligible customers’ premiums.

A spokeswoman for AA Insurance said it identified the issues as part of its regular internal reviews and reported them to the FMA itself. The company had since corrected the issues and apologized to customers.

The FMA alleges that AAI violated Section 22 of the Financial Markets Conduct Act (FMC Act) by misleading customers in marketing materials about its multi-policy discount offer between 2015 and 2020.

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The marketing material stated that existing policyholders who add another policy would receive the multi-policy discount immediately. However, AAI’s systems were set up so that the rebate would only be applied when the original policy was up for renewal, rather than immediately. In addition, AAI allegedly failed to apply the multi-insurance discount to customers’ invoices.

As a result of both issues, 112,463 customers were overcharged by $4.89 million.

Another $2.95 million in inflated awards is allegedly due to AAI’s failure to provide NZAA membership discounts on some eligible customers’ awards between 2014 and 2020, affecting approximately 112,613 eligible customers.

The FMA also alleges that between 2005 and 2015, AAI overcharged 17,973 eligible customers $3.28 million in premiums after failing to apply its guaranteed no-claims discount on its comprehensive auto insurance policies.

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All three outages were due to errors in AAI’s distribution and processing systems, incorrect data entry by employees and deficiencies in policy administration systems.

However, some errors were caused by customers purchasing their policies online and not ticking a box to confirm they had another policy or NZAA membership. But AAI didn’t have the reports needed to identify these customers and ensure the discounts were being applied correctly.

AAI said a 2018 audit identified potential deficiencies in the application of multi-policy and membership discounts, followed by an investigation by AAI in 2019 that revealed the full extent of the issues.

The AAI informed the FMA on the multi-insurance and membership discount issues in February 2020, while the no-warranty bonus issue was reported in June 2021.

Margot Gatland, Head of Enforcement at the FMA, said: “This is the seventh civil proceeding the FMA has initiated under the FMCA’s fair dealing provisions since June 2020. All of these cases largely indicate system failures and process failures.” date from before 2014, when the FMC Act went into effect.

“While in each case we recognized the companies’ efforts to exonerate customers for these issues, the time it took to even identify and fix the errors was a key factor in initiating civil lawsuits.”

AAI said it has since fixed the issues and completed comprehensive remedial programs that include refunds to customers plus interest.

“We apologize once again to everyone affected by these historic issues,” said Michelle James, CEO of AA Insurance.

“We accept that there were aspects of our processes that were not perfect, and we have placed our customers at the center of our response to those issues. At the end of last year we completed extensive remediation programs to bring relief to our customers,” said James.

“When the issues were first identified, we took great care to determine the cause and the number of customers affected. We have proactively reported to the FMA, rectified the issues and made every effort to contact affected customers to apologize and issue refunds. We worked closely with the FMA during the restructuring process and kept them regularly informed of updates.

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“We want to reassure all our customers that we have continued to improve the way we monitor our systems and processes and are investing in our operational and customer facing systems to improve our customers’ experience with us.”

The FMA is asking the Court to find that AAI has breached Section 22 of the FMC Act on all three matters and that AAI is liable to pay a fine to the Crown for the breaches.