New Zealand’s Financial Markets Authority (FMA) has filed civil proceedings against insurer Tower over a failure to correctly apply multipolicy discounts.

Tower self-reported the matter to the authority, leading to an investigation.

The FMA alleges Tower misled customers about its multipolicy discount offer since September 10 2016, affecting 81,200 policies and resulting in about $NZ9.5 million ($8.86 million) in overcharges.

In invoices and certificates of insurance issued by Tower, the multipolicy discount customers were entitled to as advertised was not applied, it says.

It adds: “The harm is ongoing for some customers.”

Tower misled customers in marketing material because it did not make clear the discount applied only to specific policies or that it would not be immediately applied when the new policy was purchased, it is claimed.

“These failures were due to fundamental flaws in Tower’s IT systems and a lack of adequate controls,” the FMA says.

Tower Chair Michael Stiassny says while the company is disappointed proceedings have begun, it is focusing on preventing further overcharging. “We accept and deeply regret that customers have been impacted,” he said. “We apologise unreservedly and will continue to work in earnest to address outstanding issues.”

For two decades, Tower has offered a discount for customers with two or more eligible policies.

Tower said in November that refunds to 65,000 customers would total about $NZ11.2 million ($10.3 million), including an estimated regulatory penalty in anticipation of enforcement action.

It says more than $NZ9.26 million ($8.65 million) has already been paid to almost 59,000 customers who were overcharged, and it has implemented checks and balances to determine and promptly remediate any further incorrectly applied discounts.

“These occurrences are now identified soon after purchase,” it said.

Tower had referred to the issue in its fiscal 2022 results, advising of an after-tax provision of $NZ2.6 million ($2.4 million).

The FMA’s proceedings, filed with the High Court in Auckland, seek a declaration that Tower contravened the Financial Markets Conduct Act and a pecuniary penalty.

“These proceedings are another example where an insurer has failed to invest in the systems, controls or governance processes to ensure that where errors occur, they are picked up quickly and fixed, and customers are remediated in a timely way,” FMA Head of Enforcement Margot Gatland said. “A significant number of customers have been overcharged over a long period as a result of Tower’s failure to address these problems.”

Last October, Auckland High Court penalised Vero New Zealand $NZ3.9 million ($3.6 million) over broken promises on discounts affecting thousands of customers. Vero self-reported the matter in late 2019.