Computer-generated issues led the nation’s largest life insurer to falsely reject claims policyholders had filed to pay for potentially life-saving surgeries on clogged arteries, a Supreme Court ruling reveals.
AIA has been ordered to pay $700,000 in fines by the Auckland High Court, but a ruling by Judge Michael Robinson reveals the costs of the insurer’s computer errors to people with AIA insurance policies who overcharged, or were told they had cover, only to be told when they didn’t.
Justice Robinson said 383 of AIA’s customers had overcharged or had improperly terminated coverage by AIA, as of April 1, 2014.
“The average financial loss per customer was $1092.60, but seven of these 383 customers were underfunded for amounts between $19,104.36 and $46,044,” he said.
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Four of AIA’s policyholders whose claims were falsely denied claimed to pay for angioplasties, which are surgeries to open blocked coronary arteries.
The value of those claims ranged between $26,882 and $36,052, the judge said.
AIA has since paid those claims, but Justice Robinson said customers who were denied or said they were entitled to the coverage they were entitled to would have suffered harm at an inherently difficult time in their lives.
Chief executive of the Financial Markets Authority, Samantha Barrass, says insurers should remember that all of their customers can be “vulnerable” at certain points in their lives.
The judge acknowledged that AIA’s mistakes were unintentional.
But he also acknowledged the frustration of the FMA that AIA took more than 10 years to pay out the injured customers.
The FMA had argued that the maximum fine AIA could face was $15 million, but said the starting point should have been $1 million to $1.2 million. The judge said AIA used a computer-based policy administration system, which took some automated actions, including calculating premiums and sending update letters to policyholders.
Some of the automated letters contain errors that mislead customers, Justice Robinson found.
Between January 2013 and February 2015, automatically generated letters were sent to 2800 customers stating that some “passback” benefits had been added to their policy, when in fact they had not.
These benefits include coverage for conditions such as critical cancer, Alzheimer’s disease, critical care treatment and heart valve replacement.
“At least five of those 2,800 customers have claimed the ‘Passback benefits’ described in the passback letters. AIA refused in whole or in part on the grounds that their policy did not include Passback benefits,” the judge said.
At least since 2009, AIA has been sending anniversary letters to some customers with incorrect policy expiration dates, leading some people to pay premiums for coverages that no longer existed.
Other customers had wrongly terminated compensation payments too early, the court ruled.
These errors cost policyholders $272,445.
The third flaw in the automatic system occurred in late 2014, when a change made by AIA caused some policyholders’ policy administration system to increase coverage by more than inflation, causing them to pay more premiums than they should have paid.
This error cost 239 customers a total of $21,606.33 in bounties.
The Financial Markets Authority Te Mana Tātai Hokohoko took the case against AIA after the insurer itself reported the breaches to the FMA, as part of a review of life insurers by the authority and the Reserve Bank in 2018.
Margot Gatland, the FMA’s chief of enforcement, said the case was the second to be heard under the Financial Markets Conduct Act, which was introduced to lift standards for banks and insurers and increase public confidence in the promote the financial services sector.
Justice Robinson ruled that AIA had undermined public confidence.
delivered
Margot Gatland, FMA Head of Enforcement, said: “This result reiterates that financial institutions will be held accountable if they do not invest enough in systems, controls and processes that ensure that all customers are treated fairly.”
“This result reiterates that financial institutions will be held accountable if they do not invest enough in systems, controls and processes that ensure that all customers are treated fairly,” Gatland said.
The first major case brought by the FMA under the Financial Markets Act was against ANZ over deceptive credit card refund insurance customers.
Two more cases are in preparation.
Cigna Life Insurance New Zealand has admittedly misleading customers by increasing their life insurance coverage by more than inflation, and facing a hearing on a fine in mid-October.
The FMA has also filed a case against Kiwibank, it says mislead about 35,000 mortgage customers.
Nick Stanhope, AIA’s New Zealand chief executive, said the case involved “historic issues,” which the insurer itself disclosed to the FMA in June 2018 when the regulator began reviewing the conduct of insurance companies.
All customers who had been wronged were refunded.