Over 269,000 customers were affected by what regulators call a "widespread breakdown"
New Zealand’s largest insurance company, IAG, has been ordered to pay a record $19.5m penalty for overcharging approximately 269,000 customers about $35m by failing to apply promised discounts and benefits.
The High Court in Auckland imposed the penalty after the Financial Markets Authority (FMA) filed civil proceedings against the insurer, which trades under the AMI, State, NZI, NAC, Lumley and Lantern brands and provides insurance products sold through ASB, BNZ, Westpac, and The Co-operative Bank.
IAG admitted to breaching the Financial Markets Conduct Act by failing to correctly price premiums and apply important discounts to insurance products sold through its business divisions and distribution partners, according to the FMA.
Between September 2021 and December 2024, IAG self-reported 41 issues to the FMA. The regulator focused on 10 of the most significant issues, which were pleaded as eight causes of action. The remaining 31 issues, involving an estimated $21m in remediation, did not form part of the pleaded claim but were recorded in a schedule providing context to IAG’s conduct.
Interest.co.nz reported that Justice Peter Andrew found the nature and extent of IAG’s contraventions to be the most aggravating feature of its conduct. The judgment stated the penalty must send a clear message to the financial market about the importance of investing in robust systems and honouring promises to customers, according to the FMA.
FMA executive director of response and enforcement Louise Unger said the contraventions were greater than those in any other fair dealing case the regulator had taken to court.
“IAG is New Zealand’s largest insurer. It is a large and sophisticated market leader and accordingly plays a vital role in upholding market standards, yet its significant underinvestment led to widespread failures of its systems and processes, to the detriment of its customers,” Unger said, according to RNZ.
“It also failed to respond to and report many of the issues in an appropriate timeframe.”
Some breaches dated back more than 20 years, with the failings attributed to inadequate and outdated systems.
IAG chief executive Amanda Whiting acknowledged the company had made historic mistakes.
“Since self-identifying these issues, our priority has been to put things right for impacted customers, offering a sincere apology and issuing refunds,” Whiting said.
“We are doing everything to prevent these issues happening again.”
The insurer completed repayments to affected customers earlier this year. The penalty reflected discounts for IAG’s self-reporting, early admissions, cooperation with the FMA investigation and remediation steps taken.
IAG is the latest major financial institution penalised under the FMA’s enforcement actions, which have resulted in more than 1.5m customers being repaid about $215m in recent years.
