Background
On 7 October 2024, the High Court ordered AA Insurance New Zealand Limited (AAI) to pay a $6.175 million penalty for breaches of the Financial Markets Conduct Act 2013 (FMCA) relating to the failure to apply customer discounts and the provision of misleading information to customers. The judgment followed civil proceedings brought by the Financial Markets Authority (FMA).
The case arose from systemic failures by AAI to correctly apply multi‑policy discounts, NZAA membership discounts, and guaranteed no claims bonuses to eligible customers over extended periods. These failures resulted in widespread customer overcharging and misleading representations in marketing materials.
In June 2023, the FMA filed proceedings alleging that AAI breached section 22 of the FMCA by misleading customers about its multi‑policy discount offer between 2015 and 2020. Marketing materials stated that customers who added an additional policy would receive the discount immediately; however, AAI’s systems only applied the discount at policy renewal and, in some cases, failed to apply it at all. As a result, 112,463 customers were overcharged $4.89 million.
The FMA further alleged that between 2014 and 2020, AAI failed to apply NZAA membership discounts to approximately 112,613 eligible customers, resulting in $2.95 million in overcharged premiums. Additionally, between 2005 and 2015, AAI did not apply its guaranteed no claims bonus to 17,973 customers, leading to $3.28 million in overcharges.
These issues were attributed to deficiencies in AAI’s sales, fulfilment, and policy administration systems, compounded by incorrect data entry, inadequate system controls, and insufficient reporting to identify and remediate errors. While some issues arose from customers not confirming eligibility during online purchases, AAI lacked effective processes to detect and correct these failures. Internal reviews, including a 2018 audit and a 2019 investigation, identified the problems, which were subsequently reported to the FMA in 2020 and 2021.
The High Court proceedings were filed in Auckland, with the Court ultimately confirming that AAI contravened the FMCA and imposing a significant pecuniary penalty, underscoring the regulatory expectation for insurers to maintain accurate pricing systems and ensure marketing representations align with operational practice.
