FMG to Pay $1.3 Million After Admitting Misleading Insurance Representations

Key Takeaways

• Fair Dealing Breaches Admitted: FMG admitted to making false or misleading representations about specified items and inflation adjustments, breaching multiple provisions of the Financial Markets Conduct Act.
• $1.3 Million Payment Under Enforceable Undertaking: FMG agreed to pay $1.3 million (NZ$2.1 million) in lieu of a pecuniary penalty following an investigation by the Financial Markets Authority.
• Widespread Customer Impact: More than 54,000 customers were affected across two long-running issues involving specified item premiums and incorrect indexation adjustments.
• Renewal Statements Deemed Misleading: The FMA found that representations in renewal documents about inflation adjustments and premium calculations were false or misleading.
• Systems and Policy Reforms Promised: FMG has committed to strengthening systems and rewriting policy wording to prevent recurrence.

Deep Dive

Farmers’ Mutual Group (FMG) has admitted to breaching fair dealing provisions under New Zealand’s Financial Markets Conduct Act after an investigation by the country’s financial regulator. The Financial Markets Authority’s inquiry, which followed a self-report by FMG, focused on two long-running issues affecting tens of thousands of policyholders.

Under an enforceable undertaking, FMG has agreed to pay $1.3 million (NZ$2.1 million) in lieu of a pecuniary penalty, in addition to customer remediation already undertaken. At the center of the case were representations made to customers about insurance cover and premium adjustments that the regulator determined were false or misleading.

Margot Gatland, the FMA’s Head of Enforcement, said the case goes to the core of how insurers communicate with policyholders.

“Insurers must ensure their representations to customers about cover, premiums, adjustments, and policy benefits are accurate, clear, and consistent with policy terms. Following our investigation, we determined that FMG’s representations to customers were false or misleading and caused customer harm,” Gatland said.

Charging for Cover That Added Nothing

One issue related to “specified items” under household contents policies. Between 2012 and 2024, some customers paid additional premiums to specify items that were already covered under their general contents sum insured. In practical terms, the specification provided no additional insurance benefit.

From 1 April 2014 to 2024, 3,904 customers were affected. FMG has paid approximately $1.2 million (NZ$1,936,000) in remediation for overcharged premiums, including GST and use-of-money interest. It also made five claim top-up payments totaling about $3,700 (NZ$6,000).

FMG acknowledged that it made misleading representations about the need to specify items and the extra cover customers would receive, breaching the Financial Markets Conduct Act.

Indexation That Didn’t Match the Policy

A broader issue involved annual adjustments to customers’ maximum insurance limits.

Between 2013 and 2024, FMG applied flat-rate increases to certain sums insured even where policies suggested adjustments would be inflation-based or no longer included an inflation clause. The FMA found these adjustments were inconsistent with policy wording and resulted in tens of thousands of customers being overcharged or undercharged.

From 1 April 2014 to 2024, 54,642 customers were affected. Around 26,000 customers were due refunds for overcharged premiums, and 480 customers received claim top-up payments. Total remediation for this issue amounted to approximately $2.1 million (NZ$3,380,000), including GST and use-of-money interest.

FMG made representations in renewal statements that inflation adjustments had been applied and that premiums were calculated in accordance with policy terms. It has now admitted those statements were false or misleading, breaching sections of the Act.

Strengthening Systems and Policy Wording

As part of the enforceable undertaking, FMG committed to strengthening its systems and rewriting policy wording to prevent similar issues from recurring. Gatland acknowledged the insurer’s cooperation during the investigation and remediation process.

“The FMA will continue to prioritize fair customer outcomes and take action where misleading conduct occurs in the financial services sector,” she said.

In insurance, small discrepancies between policy wording, system settings, and customer communications can accumulate over years, ultimately becoming regulatory and reputational risk. For boards and compliance teams, if renewal notices and premium calculations do not align precisely with the policy contract, the consequences can be both financial and public.

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