10 August 2022

Cigna admits making false and misleading representations over its communication of inflation adjustments to insurance cover

Media Release
MR No. 2022 – 27

Cigna Life Insurance New Zealand Limited has admitted to 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 Wellington High Court and alleges that Cigna breached the Fair Dealing provisions of the Financial Markets Conduct Act 2013 (FMC Act), when communicating and charging customers for inflation increases to premiums and cover in respect of 52,363 policies.

The case relates to Cigna’s communication of, and charging for, inflation benefits (known as “indexation”) to certain policyholders between between 1 April 2014 (when the FMC Act came into force) and early 2019. Cigna charged around $13.5 million in additional premiums for the increased cover that it provided.  However, the issue first began in early 2013 when Cigna changed its indexation rates.

Indexation is commonly offered on insurance policies to give customers the option of having their insurance cover (sum insured) increasing annually to keep up with inflation. It is often set using the Consumer Price Index (CPI) and premiums and cover are increased accordingly. Indexation is beneficial to many customers because it helps to ensure their cover is not reduced by the impact of inflation.

From early 2013 until early 2019, Cigna increased customers’ premiums and cover under indexation benefits, on a variety of life insurance policies, using flat rates of indexation that significantly exceeded the CPI, and which were not set with reference to the CPI or the fixed rates contained in customers’ policies, as was required under the relevant policies. The company communicated these changes to customers on an opt out basis, through annual policy notification letters.

Cigna has admitted to contravening the Fair Dealing provisions of the FMC Act (section 22) and has filed a Notice of Admissions in the High Court. The matter will proceed to a penalty hearing before the Court where the FMA will seek declarations of contravention, and the parties will submit that Cigna should be ordered to pay a pecuniary penalty.

Cigna self-reported the issue in February 2019, after the final report of the FMA and Reserve Bank of New Zealand (RBNZ) life insurance conduct and culture review. After reviewing the issue, Cigna voluntarily commenced a remediation programme in April 2019. The insurer sent a letter to affected customers about the indexation issue, offering full or partial refunds and/or adjustments to the cover of existing customers. 

As of the date of this media release, Cigna has repaid over $10.7 million (including interest) of additional premiums to customers through its remediation programme.

Cigna’s conduct overseen by senior management 

Margot Gatland, FMA Head of Enforcement, said: “Cigna’s contraventions did not arise as a result of systems errors, they were the result of periodic decisions made by senior management responsible at the time. This case highlights the importance of firms prioritising the fair treatment of customers, and placing customer needs and expectations at the heart of their governance and culture.”

Ms Gatland added: “the indexation increases were applied unless the customer actively contacted Cigna to seek a different level of cover. Customers were required to take active steps to understand Cigna’s applied rate and verify its basis. Firms must take care to get their pricing right when applying automatic changes like these. When firms are considering whether to make changes to their practices or processes, they should consider the effects of the changes on their customers, and whether updates are required to the terms of their products or services.”

Cigna to again contact certain customers

Following consultation with the FMA, Cigna has agreed to send further letters to certain customers who chose to maintain a higher level of cover, rather than a refund, to advise them of the FMA’s investigation and Cigna’s admissions. Those customers will be prompted to ensure their level of cover is adequate for their needs and that they should contact Cigna if they have any questions.

Ms Gatland said “Cigna’s remediation letters to certain customers did not explain that Cigna had applied indexation increases inconsistently with the terms of the customer’s policy and that they had received more cover than they had contracted for, and therefore more cover than they may have wanted.”

The FMA acknowledges that Cigna co-operated with the regulator throughout its investigation.  Cigna acknowledged and accepted it had contravened the FMC Act at the earliest possible stage in this proceeding.


The FMA’s claim only applies to Cigna’s conduct from 1 April 2014 onwards, which is the date the FMC Act came into force. In this timeframe, the number of affected customers is 52,363, who paid approximately $13.5 million in additional premiums.

While the total additional premiums charged were $13.5 million, due to the misapplication of indexation Cigna paid out around $6 million in additional claims, paid out $1.8 million in third party commissions, and assessed $1.15 million in additional premium reserves. Therefore, Cigna’s net gain was around $4.5 million.

Media contacts:

Andrew Park
FMA Media Relations Manager
[email protected]
021 220 6770

Campbell Gibson
FMA Senior Adviser, Media Relations
[email protected]
021 945 323