Photo: 123RF
AA Insurance (AAI) has been ordered to pay a multimillion-dollar penalty for misleading customers and overcharging them to the tune of $11 million.
The High Court imposed a near $6.2m penalty on the insurer for failing to apply multi-policy and membership discounts, as well as guaranteed no-claims bonuses.
The Financial Markets Authority (FMA), which took action against the insurer, said the breaches primarily arose out of poor systems and processes.
The High Court ruled that between 2015 and 2020, AA misled customers about its multi-policy discount offer and misrepresented that certain eligible customers would receive its guaranteed no-claims bonus for life.
"While [AAI's] marketing material represented existing policyholders who added another policy would receive the discount immediately, AAI's systems were set up to apply the discount only once the original policy was up for renewal," the FMA said.
The court found the failure to apply multi-policy discounts affected 112,463 customers, who were overcharged a total of $4.89m.
The failure to apply a discount to AA members affected 90,129 customers, who were overcharged $2.95m.
The court also found AAI overcharged 17,973 eligible customers $3.28m after it failed to apply its guaranteed no-claims bonus benefit on its comprehensive car insurance policies.
"AAI misrepresented that eligible customers would receive its guaranteed no claims bonus 'for life'," the FMA said.
"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, it said some of AAI's marketing continued to use the "for life" language.
For breaching financial markets law, Justice Laura O'Gorman imposed a pecuniary penalty with a starting point of $9.5m, a discount of 35 percent and a final penalty of $6.175m.
"Customers are entitled to feel secure that insurance premiums will be charged, and discounts applied, in accordance with policy terms and as represented in marketing material," O'Gorman said in her decision.
"Customers cannot be expected to double-check the precise details of transactions. They are entitled to trust the accuracy of their insurer's systems and processes."
More enforcement action 'in the pipeline' - FMA
FMA head of enforcement Margot Gatland told Checkpoint in terms of misleading information, AA told customers they were entitled to get a discount or a no-claims bonus, and then the customers were not given discounts on their invoices.
The case involved more than 200,000 policies or customers, and overcharges were $11.12 million, however AAI had repaid customers a total of $15.6 million.
It first came to FMA's attention when it was self-reported following the bank and insurer starting culture reviews six years ago, she said.
"I think in these situations it is really difficult for customers to know whether what's been advertised to them has been honoured.
"It's possible they might pick it up if they're checking their invoices really closely, but I guess that's why the FMA's focus has been on the self-reports remediations and fixing system errors to try and prevent these sorts of issues occurring in future."
This was the seventh judgement from the court and the eighth proceeding filed in a similar line of cases, "and there are more in the pipeline", Gatland said.
"We have seen a lot of remediations reported over the last six years. The most serious of those have gone through the courts.
"AA did cooperate during the investigation, has remediated customers and has been focusing on fixing the root causes of these errors, to try and prevent these issues from occurring in future."
The line of cases involved banks and insurers, but through conduct and culture reviews, there had been over $215 million paid in remediations following self-reported issues, she said.
"The FMA has only taken the most egregious breaches through the courts. So, what's actually been taken into penalty judgements like this have been comparatively small compared to the overall remediations done by banks and insurers in that space."
There were several areas that needed to be worked on, she said.
"But we've actually ended up with a comparatively small number of cases going through the courts that represent the most harmful conduct that we've seen following those self-reports."
If the companies had already paid back millions and more than what they took off the customers or denied the customers, "the $6 million in penalties goes back to the general fund, aside from the FMA's actual costs and investigating the proceeding", she said.
The FMA advised customers to check invoices.
"It is important to check whether you have been honoured with a multi-policy discount - for example, on your invoice - and to ask your insurer. Having said that, it's not always easy to spot," she said.
"The FMA is focused on getting banks, insurers and other financial service providers into the situation where what they are saying they're providing is actually being provided and really trying to get those root causes fixed."
AA response
AA Insurance was asked for an interview on Checkpoint, but declined and, instead, issued a statement.
The company said it had apologised for the errors made and between 2020 to 2022, carried out comprehensive remediation programmes to fully refund more than $15.6 million to past and present customers, including with interest.
It had worked cooperatively with the FMA throughout the process, AA said.
