IAG admits underpaying claims
The Commerce Commission has reached a settlement with IAG New Zealand after the insurer admitted it may have breached the Fair Trading Act and underpaid on some claims.
IAG found an error in August last year while assessing Canterbury earthquake claims and advised the commission in October, the commission said.
IAG admitted it may have breached the Fair Trading Act in relation to more than 150,000 insurance policies.
The problem affects some house and contents insurance policies offered by NZI, Lantern, ASB, BNZ and Co-operative Bank.
IAG miscalculated the sum insured in 643 previously paid-out total-loss insurance claims, where the policyholder may be entitled to compensation.
The same error will affect the renewal of 150,755 policies.
The policies affected date back to 1980 in some cases and include a sum insured that was to be automatically adjusted each year to reflect rising inflation.
In fact, the sum insured adjustments were incorrectly set below the rate of inflation for much of that period. The result has been that the sum insured for some people is less than it should be.
The commission said the error meant that some current and historic claims had been underpaid on the basis of a sum-insured figure that is lower than it should have been.
All affected current policies have a sum-insured figure that is too low and on renewal this will be corrected to what the sum insured should be. This is likely to lead to an increase in premium for the policyholder.
As part of the settlement, IAG estimates that it will make payments of up to $3.48 million to affected customers who have previously been paid out on total-loss insurance claims, and those with total-loss claims, to reflect what they should have received or are due to receive.
IAG will offer the more than 150,755 current policyholders the option of accepting an increased sum-insured amount and therefore a higher insurance premium or agreeing to a different value.
IAG has agreed to pay the commission's costs.
"IAG's error was administrative but had potentially far-reaching effect, particularly for people at their most vulnerable following significant personal loss,'' said Commerce Commission competition general manager Kate Morrison.
"However, the company is to be commended for advising us about this problem and for being prepared to put matters right."
Through its proactive response IAG has avoided a potentially lengthy and costly investigation and affected customers had been, or would be, compensated, Morrison said.
"We encourage businesses to, in the first place, have compliance programmes to ensure they stay on the right side of the law,'' she said.
Concerned policyholders should contact IAG on 0800 694 694.
Are you an affected IAG customer? To speak to a Press reporter, email email@example.com.