Insurer fined $3.3 million over 'misleading' premium changes
The High Court of New Zealand has fined Chubb-owned Cigna $NZ3.575 million ($3.3 million) for “misleading” more than 52,000 customers about premium changes made to their life policies.
The misconduct took place over a six-year period, from January 2013 to November 2019, before Chubb announced in October 2021 a “definitive” agreement to buy the New Zealand business.
Justice Jillian Mallon made her ruling in late December after Cigna admitted it made “false or misleading” representations in proceedings lodged by the Financial Markets Authority (FMA).
FMA said today the penalty against Cigna is the largest it has secured in an enforcement case.
During the six-year period Cigna employed indexation clauses in at least 40 different types of policies to premium changes and cover.
Indexation is commonly offered on insurance policies to give customers the option of having their insurance cover – or sum insured – increasing annually to keep up with inflation. Increases are often set using the Consumer Price Index (CPI).
However Cigna applied flat rates that were not set by reference to the CPI or to the fixed rates that were set out in policies.
“In charging premiums on the basis of those flat rates, Cigna falsely or misleadingly represented that the indexation increase had been calculated in accordance with the customer’s policy and that Cigna was entitled to charge the premium,” Justice Mallon says in her ruling.
“While customers obtained increased cover from Cigna’s conduct, it is not for Cigna to decide this for customers without being clear and transparent about the basis for the increase.”
Cigna charged around $NZ13.5 million ($12.4 million) in additional premium for the increased cover it provided.
Its net gain is about $NZ4.5 million ($4.1 million) as it has paid out about $NZ6 million ($5.5 million) in additional claims relating to the additional premiums, $NZ1.8 million ($1.6 million) in third-party commissions, and assessed $NZ1.15 million ($1.06 million) in additional premium reserves.
“Cigna’s conduct affected many of its customers, who trusted the firm to be transparent and look after their interests,” FMA Head of Enforcement Margot Gatland said.
“This judgment sends a strong message to the industry that firms need to give due regard to customers’ interests, including when making pricing changes and communicating them.”
The penalty represents a 35% discount from a recommended starting point of $NZ5.5 million ($5.05 million) made by the FMA and Cigna.
Justice Mallon says the discount took into account the mitigating factors submitted before her, including Cigna’s co-operation with the FMA, the insurer’s self-reporting of the breaches and undertaking of a remediation program for affected customers.
Cigna self-reported the issue in February 2019, after the final report of the FMA and Reserve Bank of New Zealand life insurance conduct and culture review.
In April that year it voluntarily commenced a remediation program and has to date repaid $NZ10.7 million ($9.8 million), including interest, of additional premiums to customers.
Click here for the court ruling.
