Insurer Cigna admits benefiting from increased life cover for customers

The Financial Markets Authority will now ask the Wellington High Court to impose a financial penalty on the insurer Cigna.

Monique Ford / Stuff

The Financial Markets Authority will now ask the Wellington High Court to impose a financial penalty on the insurer Cigna.

Cigna Life Insurance New Zealand has admitted misleading its customers by increasing their life insurance coverage by more than inflation.

The Financial Markets Authority Te Mana Tātai Hokohoko (FMA) said the insurer had admitted making false and/or misleading representations to customers in a case filed in Wellington High Court.

The FMA alleges that Cigna violated the fair dealing provisions of the Financial Markets Conduct Act when communicating and billing customers for increases in premium inflation and coverage of 52,363 fonts.

Policyholders can choose to increase their coverage with inflation each year, so it keeps up with the cost of living, but the FMA said Cigna used index rates that significantly exceeded the index for consumer prices, the measure of inflation in New Zealand.

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It happened between April 2014 and early 2019, the FMA said.

“Cigna charged approximately $13.5 million in additional premiums for the increased coverage it provided,” the FMA said.

From early 2013 to early 2019, Cigna increased customer premiums and index benefit coverage, on a variety of life insurance policies, using flat index rates that significantly exceeded the CPI, a said the FMA.

The Financial Services Council’s Insurers’ Club polled the public on the main reasons why people were underinsured.

The indexation increases did not match fixed rates contained in customer policies, the regulator said.

Gail Costa, Cigna’s chief executive, said the company initiated proactive corrective action for customers, who were offered the option of a refund and lower coverage.

She said Cigna did not intend to mislead customers.

More than three out of four customers (76%) contacted by the company had opted to keep their coverage levels indexed, she said.

Margot Gatland, Chief Enforcement Officer at the FMA, said: “Cigna’s breaches did not arise as a result of system errors, they were the result of periodic decisions made by responsible senior management at the time.

“This case highlights the importance for companies to prioritize the fair treatment of customers and to place customer needs and expectations at the heart of their governance and culture.”

Now that Cigna has filed a “Notice of Admission” with the High Court, she faces a penalty hearing at which the FMA will seek a monetary penalty.

The issue arose following Cigna’s notification to the FMA, which regulates the behavior of insurers.

After investigating the issue, Cigna voluntarily launched a remediation program in April 2019, Gatland said.

Cigna has so far repaid more than $10.7 million, including interest, she said.

Inflation erodes the value of people's life insurance unless policyholder coverage is increased each year, but Cigna has increased people's coverage by more than the CPI, the FMA found.

Kathryn George / Stuff

Inflation erodes the value of people’s life insurance unless policyholder coverage is increased each year, but Cigna has increased people’s coverage by more than the CPI, the FMA found.

The insurer also sent letters to customers explaining in detail what it had done.

“Cigna’s remediation letters to certain customers did not explain that Cigna had applied index increases inconsistent with the terms of the customer’s policy and that they had received more coverage than they had contracted for, and so more coverage than they could have wanted,” she said. .

In June, Cigna Life Insurance and its subsidiary, Onepath Life, agreed to pay the FMA $180,000 for their role in the credit card mis-selling scandal that landed ANZ in court.

Last year, ANZ was fined $280,000 for selling some customers credit card refund insurance they were too old to claim and charging others for ‘duplicate’ policies which offered them no additional coverage.

But ANZ’s credit card refund insurance was provided by Onepath Life, which was sold to Cigna in 2018.

The FMA said Cigna and Onepath Life should have spotted the mistakes made by ANZ.

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