Justice Michael Robinson said AIA's conduct would have likely caused emotional and direct financial harm. Photo: RNZ / Simon Rogers
The High Court has penalised life insurer AIA $700,000 for making false and misleading representations to customers.
The company admitted to breaching the Financial Markets Conduct Act and had agreed to the penalty with the Financial Markets Authority (FMA), after self-reporting the issue during the financial watchdog's review of the life insurance industry in 2018.
The breaches date back to 2014 and relate to incorrect or misleading communication with 383 customers with life insurance and associated policies who were overcharged or had claims underpaid by more than $413,000.
AIA told customers supposed benefits had been automatically added to their policies when they had not, charged premiums after the termination of a policy, treated policies as terminated when they should have remained in force, and made incorrect inflation adjustments.
In his decision, Justice Michael Robinson agreed with the FMA that AIA's conduct would have likely caused emotional and direct financial harm.
"Particularly those few customers who were declined cover or whose cover ceased prematurely. Those customers were declined disability, income replacement and other health-related cover which is only available in inherently stressful circumstances.
"The wrongful declinature or premature cessation of cover would exacerbate that stress."
FMA head of enforcement Margot Gatland said the outcome demonstrates that financial institutions will be held to account if they fail to invest in their systems, controls and ensure customers are treated fairly.
"AIA accepted customers should be able to rely on the robustness of their insurer's systems," she said.
The FMA said in bringing the proceedings, it hoped to deter other financial institutions from having deficient processes.
The judgment shows AIA acknowledged its system failures should not have occurred and improvements have been made.
The court noted AIA fully investigated and remediated all the problems.