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The life insurance company Cigna has admitted making false and misleading representations to customers, in court proceedings brought by the Financial Markets Authority.

18072016 Photo: Rebekah Parsons-King. Wellington High Court.

Photo: RNZ / Rebekah Parsons-King

The case, filed at the High Court in Wellington, relates to Cigna’s communication and charging for inflation benefits, known as indexation, to a number of policy holders between April 2014 and early 2019.

Indexation is commonly offered on insurance policies to give customers the option of having their cover rising annually to keep pace with inflation.

The authority said Cigna increased customers’ premiums and cover under indexation benefits on a range of policies, using flat rates of indexation, that significantly exceeded the actual inflation rate.

The rates were not set with reference to the Consumer Price Index or fixed rates in customers’ policies, as was required, the authority said.

It said Cigna’s actions breached the fair dealing provisions of the Financial Markets Conduct Act.

The authority said the alleged actions took place between 2013 and 2019, but it could only file proceedings for instances between 2014 and 2019 as the FMC Act came into effect in April 2014.

The authority said Cigna charged around $13.5 million in additional premiums for increased cover, affecting 52,363 policies.

It said Cigna self-reported the issue in February 2019, after the final report of the FMA and Reserve Bank life insurance conduct and culture review.

After reviewing the issue, Cigna voluntarily began a remediation programme in April 2019 and sent a letter to affected customers, offering full or partial refunds and adjustments to the cover of existing customers.

The authority said so far Cigna had reimbursed $10.7m to affected customers.

FMA head of enforcement Margot Gatland said Cigna’s conduct was overseen by senior management.

“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 the fair treatment of customers, and placing customer needs and expectations at the heart of their governance and culture,” Gatland said.

The case will proceed to a penalty hearing before the High Court.

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