IAG NZ paying $19.5 million penalty after self reporting Financial Markets Conduct Act breaches the FMA says are the worst in any fair dealing case it has taken to court to date

IAG NZ has been ordered to pay $19,500,000 for fair dealing breaches affecting over 260,000 customers leading to overcharges of about $35 million, with a net gain to the insurer of approximately $31.1 million.

In April the Financial Markets Authority (FMA) announced it had filed civil court proceedings against IAG NZ at the High Court in Auckland. This came after IAG self-reported failures, with the insurer now saying it's "doing everything" to prevent the issues from reoccurring.

New Zealand’s largest general insurer, IAG NZ trades under the AMI, State, NZI, NAC, Lumley and Lantern brands. It also provides general insurance products sold by ASB, BNZ, Westpac and The Co-operative Bank.

Following an investigation by the FMA, the regulator says IAG NZ has admitted to making false and/or misleading representations in relation to its insurance products, breaching the Financial Markets Conduct Act by “failing to correctly price the premiums charged to customers, and by failing to correctly apply important discounts to its insurance products sold via its business divisions and distribution partners”.

“Between September 2021 and December 2024, IAG self-reported 41 issues to the FMA, of which 10 of the most significant (and earlier reported) issues were pleaded as eight causes of action against IAG," the FMA says.

“The breaches to which IAG has admitted affected approximately 269,000 customers and resulted in overcharges of approximately $35,000,000."

“The remaining 31 issues, which involve an estimated total remediation of $21 million, did not form part of the pleaded claim, however, they are recorded in a schedule to it and provide crucial context to IAG’s conduct," the FMA says.

A clear message to the financial market

The FMA says Justice Peter Andrew, who presided over the civil court case, found the “nature and extent of IAG’s contraventions to be the most aggravating feature of its conduct” and that the “penalty must be set at a level that sends a clear message to the financial market – and particularly similarly large and well-resourced institutions – as to the importance of investing in robust systems and making good on the promises to customers”.

The regulator also says Justice Andrew observed that “IAG’s knowledge of the breaches and the delay in reporting them to the FMA, particularly following the culture and conduct review, is an aggravating factor”.

IAG had self-reported the historical failures in the application of discounts to some customers and miscalculation of government levies and this was accounted for in the penalty, the FMA says.

“The penalty reflects discounts for IAG’s self-reporting, its early offer of admissions, its exemplary cooperation with the FMA’s investigation, and the steps taken to remediate its customers."

'Contraventions greater than those present in any other fair dealing case'

The FMA’s executive director of response and enforcement Louise Unger says: “The nature and scale of IAG’s contraventions was greater than those present in any other fair dealing case the FMA has to date taken to Court, and the judgment confirms they warrant a significant penalty.”

“IAG is New Zealand’s largest insurer. It is a large and sophisticated market leader and accordingly plays a vital role in upholding market standards, yet its significant underinvestment led to widespread failures of its systems and processes, to the detriment of its customers.

“It also failed to respond to and report many of the issues in an appropriate timeframe.”

Unger says the penalty has been set at a level that sends a clear message to the financial market and similarly large and well-resourced institutions “as to the importance of investing in robust systems and making good on the promises made to customers”.

“We will continue to respond to misleading practices to ensure New Zealand has a fair financial system.”

‘We are doing everything to prevent these issues happening again’

IAG NZ says it recognises it historically made mistakes and has invested in new systems and processes as they become available.

“Significant changes have been made and will continue to be made.”

“IAG remains committed to continuous improvement, reflecting on the errors of the past, and creating better systems to avoid errors in the future.”

The insurer’s chief executive Amanda Whiting says: “Since self-identifying these issues, our priority has been to put things right for impacted customers, offering a sincere apology and issuing refunds.”

“We are doing everything to prevent these issues happening again.”

“The underlying issues have been fixed, and all affected customer’s repayments were completed earlier this year,” Whiting says.