AIA Admits False And Misleading Representations To Customers In FMA Fair-dealing Proceedings
Life insurer AIA has admitted making false and/or misleading representations to customers in proceedings brought by the Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko.
The case was filed in the Auckland High Court and alleges three causes of action under the Fair Dealing provisions (Part 2) of the Financial Markets Conduct Act 2013 (the FMC Act).
AIA has agreed to admit all causes of action and will file a Notice of Admission of the breaches in the High Court. The matter will proceed to a penalty hearing before the High Court where the FMA will seek declarations of contravention, and where the parties will submit that AIA should be ordered to pay a pecuniary penalty of $700,000.
The FMA case is based on three core breaches regarding incorrect and misleading communication to customers holding various life insurance and associated policies:
- purported enhancement of policy benefits
- charging premiums after the termination of a policy and treating policies as terminated when they should have remained in force, and,
- incorrect inflation adjustments.
- Passback benefits: AIA wrongly told certain customers they were entitled to passback benefits (cover enhancements to an existing policy), without clarifying that the benefits only applied to post-2003 policies. The information customers received in anniversary letters misrepresented the benefits, and in some cases misled them about their policies.
2. Termination Date issues:
a. Premiums beyond termination: AIA continued to charge 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.
b. Cover Cessation: AIA wrongly ceased cover for certain customers while their policies remained in force, which resulted in some customers, whose claims had been accepted, being underpaid on those claims. Customers were informed by cover cessation letters.
3. Inflation Adjustments: AIA applied incorrect inflation adjustments to premiums. Many AIA customers choose to have their sum-assured adjusted in line with inflation, with premiums increased accordingly. Policy anniversary letters were sent to customers where the inflation adjustment had been incorrectly applied, and, as a consequence, some customers were charged excess premiums.
AIA self-reported the breaches to the FMA, when asked to provide information as part of the joint FMA/Reserve Bank of New Zealand conduct and culture review of life insurers in 2018. AIA has told the FMA that remediation for affected customers has been completed, and the FMA will be seeking confirmation of this as part of the process.
In deciding to bring this action, the FMA took into account a number of factors, including AIA’s self-reporting, its remediation efforts, the nature of the alleged misconduct, and the number of affected customers.
The FMA considered the seriousness of the breaches, and the length of time it has taken to deal with impacted customers, warranted enforcement action. The FMA is determined to hold such misconduct to account and send a strong message of deterrence to the market. The FMA case only captures breaches that occurred from 1 April 2014 – when the FMC Act came into force – but some breaches occurred prior to this and continued after the Act came into effect.
Karen Chang, FMA Head of Enforcement, said: “Consumers’ trust in the integrity of their life insurance provider is paramount for the industry to be effective. This case demonstrates that firms providing critical insurance must ensure they have necessary systems and controls in place to perform their core business and manage their customers’ policies correctly.
“The customers affected by the passback benefits issue will have undergone a traumatic and lifechanging event before making a claim. AIA’s behaviour exacerbated and prolonged the harm to customers who were already in vulnerable circumstances. They took out insurance to reduce stress and financial impact in a time of significant hardship and uncertainty, but when they needed the cover they had been told they had, it was denied. Moreover, AIA would not pay out until much later,” said Ms Chang.
The FMA acknowledges that because AIA admitted the breaches at an early stage, the matter will now proceed directly to a penalty hearing before the High Court and avoids the necessity and cost of a trial.
The FMA will apply for orders that the pecuniary penalty be first applied to meet the FMA’s actual costs in bringing the proceeding.