The Commerce Commission has reached a settlement with insurer IAG New Zealand Limited (IAG) after IAG admitted it may have breached the Fair Trading Act in relation to more than 150,000 insurance policies.

IAG discovered an error in August 2011 while assessing Canterbury earthquake claims and advised the Commission in October 2011. The problem affects some house and contents insurance policies offered by NZI, Lantern, ASB, BNZ and Co-operative Bank. IAG miscalculated the sum insured in 643 previously paid out total loss insurance claims. The same error will also affect the renewal of 150,755 current policies. 

The policies affected date back to 1980 in some cases, and include a sum insured which was to be automatically adjusted each year to reflect rising inflation. In fact the sum insured adjustments were incorrectly set below the rate of inflation for much of that period. The result has been that the sum insured for some people is less than it should be.

 As part of the settlement, IAG estimates that it will make payments of up to $3.48 million to affected customers who have previously been paid out on total loss insurance claims, and those with total loss claims, to reflect what they should have received, or are due to receive. IAG will also offer the more than 150,755 current policyholders the option of either accepting an increased sum insured amount and therefore a higher insurance premium or agreeing a different value. 

IAG has also agreed to pay the Commission’s costs.

“IAG’s error was administrative but had potentially far-reaching effect, particularly for people at their most vulnerable, following significant personal loss. However, the company is to be commended for advising us about this problem, and for being prepared to put matters right,” said Commerce Commission General Manager, Competition, Kate Morrison.

“Through its proactive response IAG has avoided a potentially lengthy and costly investigation and affected customers have been, or will be, compensated,” said Ms Morrison.

“We encourage businesses to, in the first place, have compliance programmes to ensure they stay on the right side of the law. But if things go wrong, acting quickly to put matters right, and raising the issue with the Commission is the best way to resolve matters to the satisfaction of all concerned,” said Ms Morrison.

The people who hold policies that are affected are being contacted directly by their broker or IAG. They do not need to contact the Commerce Commission. The Commission’s role now is simply to ensure the terms of the settlement are met by IAG.

Concerned policyholders should contact IAG on 0800 694 694.

You can read the settlement and a Question and Answer sheet on the Commission’s website at www.comcom.govt.nz/fair-trading-enforcement-outcomes

Background

IAG New Zealand Limited is a wholly-owned subsidiary of Insurance Australia Group Limited, and trades under the brand names of State and NZI as well as distributing insurance via intermediaries.

Only the courts can decide if the Fair Trading Act has been breached. Penalties under the Act can be up to $60,000 for an individual and up to $200,000 for a company, per offence.