As a result of both issues, 112,463 customers were overcharged $4.89m on their premiums.
A further $2.95m in overcharged premiums is alleged due to AAI failing to apply NZAA membership discounts on the premiums of some eligible customers between 2014 and 2020, affecting approximately 112,613 eligible customers.
The FMA also claims that between 2005 and 2015, AAI overcharged 17,973 eligible customers $3.28m on their premiums after it failed to apply its guaranteed no-claims bonus benefit on its comprehensive car insurance policies.
All three failures were due to errors in AAI’s sales and fulfilment systems, incorrect data entry by its employees and deficiencies in its policy administration systems.
However, some errors were caused by customers taking out policies online, where they did not tick a box confirming they held another policy or a NZAA membership. But AAI did not have the reporting in place to identify those customers and ensure that the discounts were being applied correctly.
AAI said a 2018 audit identified potential failings in the application of the multi-policy and membership discounts which was followed up with an investigation by AAI in 2019, revealing the full scale of the issues.
The AAI notified the FMA of the multi-policy and membership discount issues in February 2020, while the guaranteed no-claims bonus issue was reported in June 2021.
Margot Gatland, FMA head of enforcement, said: “This is the seventh civil proceeding case the FMA has brought under the fair dealing provisions of the FMCA, since June 2020. All these cases point to system errors and process failures that for the most part date back prior to 2014, when the FMC Act came into effect.
“While we have acknowledged in each case the efforts companies have made to remediate customers for these issues, the length of time taken to identify and resolve the mistakes in the first place was a key factor in commencing civil court action.”
AAI said it has since corrected the issues and completed comprehensive remediation programmes involving refunds to customers, plus interest.
“We reiterate the apology we have made to all those affected by these historical issues,” said AA Insurance CEO Michelle James.
“We accept there were aspects of our processes which weren’t perfect, and we’ve put our customers at the heart of our response to these issues. Late last year, we completed the comprehensive remediation programmes to put things right for our customers,” James said.
“When the issues were first identified, we took great care to identify the cause and the number of customers impacted. We proactively self-reported to the FMA, we fixed the issues, and made every effort to contact affected customers to apologise and provide refunds. We have worked closely with the FMA throughout the remediation process, providing them with regular updates.
“We want to reassure all our customers that we have further strengthened the way we monitor our systems and processes and we are investing in our operational and customer-facing systems to improve the experiences our customers have with us.”
The FMA is seeking a declaration from the court that AAI contravened section 22 of the FMC Act on all three matters and that AAI pay a pecuniary penalty to the Crown for the breaches.
