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IAG fined $127,000 over State windscreen repairs

Media Release

Issued 31 August 2006/032

IAG fined $127,000 over State Insurance windscreen repairs

IAG, the largest motor vehicle insurer in New Zealand and the parent company of State Insurance and NZI, has pleaded guilty to 30 breaches of the Fair Trading Act and has been fined $127,000 in the District Court in Auckland.

The Court found that State Insurance misled customers about their right to choose a windscreen repairer when making an insurance claim.

State Insurance’s brochures said that policy holders could choose any company to carry out windscreen repairs, but contact centre staff told a significant number of customers that they had to use Smith & Smith for the work.

Some customers were wrongly told that their policy required them to use Smith & Smith. Others had already booked their repairs with an alternative repairer, but cancelled the bookings and used Smith & Smith instead, because State Insurance told them they had to.

The Court found the representations made by IAG were false, and were a breach of section 13(i) of the Fair Trading Act, which prohibits companies from misleading customers about their rights.

While the company was fond guilty on 30 charges, the level of the penalty reflects the likelihood that a large number of people had been misled in a similar way by IAG.

Commerce Commission Chair Paula Rebstock said that the case had attracted considerable interest since the Commission began investigating in October 2004.

“The Commission is pleased with these penalties, which recognise that companies must honour the promises they make,” Ms Rebstock said.

IAG’s 2003 brochure lists 17 “Main Policy Benefits.” Number 10 is “Choose to have repairs carried out by any repair service nationwide.”

“It is fair to assume that they made that statement to attract customers and gain a competitive advantage,” Ms Rebstock said.

Ms Rebstock said that the ability to choose one’s own repairer would be an attractive feature to some people when buying insurance, and may well have influenced their decision to insure with IAG.

“Once IAG had made that representation, they had to honour it. Instead they misled customers and deprived them of the right to choose,” Ms Rebstock said.

“IAG has a very large share of the insurance market in New Zealand so this behaviour is likely to have had a significant impact on the competitive environment,” Ms Rebstock said.

Ms Rebstock said that IAG should have done more to ensure that its staff were not misleading customers.

“IAG cannot claim they didn’t know they were misleading their policy holders,” Ms Restock said.

“They knew about the problem, but their behaviour suggests that they did not take the misrepresentation issue seriously until the Commission began investigating.”

A competitor of Smith & Smith wrote to the then CEO of IAG, David Smith, in June 2004, telling him that contact centre staff were making the misleading claims. The Commission found the misleading statements were still being made in October 2004 when it began its investigation. Once IAG were told that the Commission was investigating, it took steps to stop staff from misleading customers.

“A large organisation such as IAG has access to the best legal advice,” Ms Rebstock says.

“They should understand their legal obligations and have robust compliance programmes in place to ensure they do not break the law,” Ms Rebstock said.

She noted that the Commission’s investigation had been hampered by the company failing to provide complete information when requested and that the Commission had ultimately needed to execute search warrants on IAG’s Christchurch premises.


IAG owns State Insurance and NZI and is the biggest insurer of motor vehicles in New Zealand. State Insurance deals with more than 55,000 auto glass repair claims each year.

The State Insurance car insurance brochure dated December 2003 and titled “Your car cover, wherever you choose to go” reads: “You can choose whether you wish to have your damaged vehicle assessed by our team of experts and repaired by one of the IAG Quality Repairers, or whether you would like to use your own repairer.” A table in the brochure lists 17 “Main Policy Benefits.” Number 10 is “Choose to have repairs carried out by any repair service nationwide.”

The false and misleading representations were made by call centre staff in Christchurch to customers across the whole of New Zealand over the period July 2003 to October 2004.

During its investigation, the Commission executed a search warrant at IAG’s Christchurch premises in September 2005. Based on information obtained during the search, approximately 200 policy holders were contacted, 30 witness statements were taken, and the charges were based on these statements. The level of the penalty reflects the likelihood that a large number of people had been misled in a similar way by IAG.

Consumers in this case incurred personal inconvenience and stress from engaging in, at times, protracted discussions with State Insurance staff regarding the use of Smith & Smith as opposed to their preferred repairer. Some customers were “told off” by State Insurance staff for using rival repairers.

Once IAG knew the Commission was investigating, the company reviewed its training and reference material for staff. It inserted new information into its contact centre manual about what staff should do in the situation where a policyholder does not want to have their vehicle windscreen repaired at Smith & Smith, and posted a memo on the company’s intranet website reminding staff of the need for flexibility in respect of windscreen claims.


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