New Zealand’s High Court has imposed a $NZ6.175 million ($5.59 million) penalty on AA Insurance for failing to apply multipolicy and membership discounts and guaranteed no-claims bonuses, and has warned financial services businesses must be held to high standards.

Justice Laura O’Gorman says the penalty considers general deterrence, while recognising that AAI self-reported the issues, co-operated with a Financial Markets Authority investigation, paid full compensation and took action to fix its systems and processes.

“Customers are entitled to feel secure that insurance premiums will be charged, and discounts applied, in accordance with policy terms and as represented in marketing material,” she said in a decision handed down last week.

“Customers cannot be expected to double check the precise details of transactions. They are entitled to trust the accuracy of their insurer’s systems and processes.”

AAI is a joint venture between the New Zealand Automobile Association and Suncorp’s Vero Insurance New Zealand.

Justice O’Gorman says the contraventions arose from weaknesses in AAI’s systems and processes that amounted to systemic failures rather than one-off errors, leading to a total overcharge to customers of $NZ11.2 million ($10.2 million).

The multipolicy discount issue affected about 112,463 customers, 90,129 were affected by issues related to New Zealand Automobile Association membership discounts, and a guaranteed no-claims bonus issue affected about 17,973 customers.

There were also misrepresentations to some customers about a no-claims bonus “for life”.

The Financial Markets Authority says the penalty reflects the number of customers affected and level of harm caused.

“AAI’s systems proved to be inadequate and its marketing was not kept in line with internal policies,” head of enforcement Margot Gatland said.

“This judgment sends a strong message to the industry that companies need to ensure their systems and processes are fit for purpose and customers’ interests put first.”

Last October, the High Court ordered Vero to pay $NZ3.9 million ($3.5 million) for failing to apply multipolicy discounts, and the Financial Markets Authority has also filed proceedings against Tower over multipolicy discount failings.

AAI CEO Michelle James says the insurer has apologised for the errors and between 2020 and 2022 ran remediation programs to refund more than $NZ15.6 million ($14.1 million), including interest, to past and present customers.

“We are committed to being better and are confident that today we have stronger systems and processes in place, which we continue to build on,” she said.

“We are also investing heavily in the transformation of our core systems, which will help to further improve the experiences our customers have with us.”