Cigna admits misleading customers

Cigna Life Insurance New Zealand has admitted misleading customers by increasing their life insurance cover 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 the High Court at Wellington.

The FMA alleges that Cigna breached the fair dealing provisions of the Financial Markets Conduct Act when communicating and charging customers for inflation increases to premiums and cover on 52,363 policies.

Policyholders can opt to have their cover increased by inflation each year, so it keeps up with the cost of living, but the FMA said Cigna used rates of indexation that significantly exceeded the Consumer Price Index, New Zealand’s measure of inflation.

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

‘‘Cigna charged around $13.5 million in additional premiums for the increased cover that it provided,’’ the FMA said.

From early 2013 until early 2019, Cigna increased customers’ premiums and cover under indexation benefits on a variety of life insurance policies, using flat rates of indexation that significantly exceeded the CPI, the FMA said.

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

Cigna chief executive Gail Costa said the company initiated proactive remediation for customers, who were offered the option cover.

She said it was not Cigna’s intention to mislead customers.

More than three in four customers (76%) contacted by the company had chosen to keep their indexed cover levels, she said.

Margot Gatland, the FMA’s head of enforcement, said: ‘‘Cigna’s contraventions did not arise as a result of systems errors. They were the result of periodic decisions made by senior management responsible at the time.

‘‘This case highlights the importance of firms prioritising of a refund and lower the fair treatment of customers, and placing customer needs and expectations at the heart of their governance and culture.’’

Now Cigna has filed a Notice of Admissions in the High Court, it faces a penalty hearing at which the FMA will seek a pecuniary penalty.

The issue came to light as a result of Cigna notifying the FMA, which regulates insurers’ behaviour. After reviewing the issue, Cigna voluntarily commenced a remediation programme in April 2019, Gatland said. It had so far repaid over $10.7m, including interest.