The Medical Assurance Society (MAS) has been ordered to pay a penalty of $2.1 million after admitting it breached one of the Financial Markets Conduct Act’s fair dealing provisions, which affected thousands of its customers.

The Financial Markets Authority (FMA) announced on Monday the society had made false and/or misleading representations to some of its customers.

Between 2014 and 2022, the FMA said, MAS didn’t apply the multi-policy discount, or incorrectly applied a lower rate of the discount to premiums owed by some eligible customers.

Overcharged premiums

“This issue affected approximately 8864 customers, with approximately $3,318,997 in overcharged premiums,” the market watchdog said.

The authority said MAS applied an inflation adjustment of 3 per cent, instead of the inflation adjustment specified in the policies of customers who had elected to receive an inflation adjustment. This issue affected approximately 6267 customers, with approximately $1,714,067 in overcharged premiums.

MAS also made “various errors” when manually calculating customers’ benefit payments, with the errors resulting in some receiving lower payments than they would have received if the errors hadn’t occurred.

The FMA said this issue affected approximately 104 customers, with approximately $1,047,059 in underpayments. MAS also didn’t apply the correct “no-claims bonus grade to premiums” owed by some eligible customers; this issue affected approximately 1235 customers, with approximately $572,061 in overcharged premiums.

MAS self-reported the issues to the authority between 2019 and 2022.

The watchdog said MAS was aware of the multi-policy discount issue from at least 2014, but no steps were taken to investigate until the issue was rediscovered in 2019.

Penalty

In a penalty hearing last week, Justice Peter Churchman said MAS had breached Section 22 of the Financial Markets Conduct Act, and he imposed a pecuniary penalty “with a starting point of $3m, a discount of 30 per cent, and a final penalty of $2.1m”.

“Customers are entitled to trust in the accuracy of their insurance provider’s communications in its systems, but cannot do so where they must double-check pricing and invoices (particularly where, as is the case here, customers could not verify whether amounts charged or benefits paid were correct),” he said.

MAS admitted back in September that it had breached Section 22 – one of the fair dealing provisions.

The FMA’s head of enforcement, Margot Gatland, said the society’s breaches were “widespread” across the whole of its insurance business due to fundamental flaws in the design of its systems and processes, which “overtly relied on manual processes with no detective controls”.

“The issues caused considerable harm to a significant number of MAS’s customers, being more than 16,000 across all issues, and the harm caused by the benefits-payment issue affected customers who were at particularly vulnerable times in their lives,” she said.

While MAS is a relatively small insurer by market standards, the net gain it made from its breaches was significant. MAS has repaid affected customers $6,115,271 as part of its remediation programme.