IAG Hit with $11.6 Million Penalty for Widespread Failures

Key Takeaways

• Record Penalty: IAG New Zealand Limited fined $11.6 million (NZD 19.5 million) for widespread fair dealing breaches.
• Customer Harm: 269,000 customers overcharged by about $20.9 million (NZD 35 million), with further remediation expected.
• Court Rebuke: Justice Andrew cited IAG’s knowledge and delays in reporting breaches as aggravating factors.
• Regulatory Warning: FMA stressed the case sends a clear message to large financial institutions to invest in robust compliance systems.
• Mitigation: Penalty reduced for self-reporting, early admissions, and remediation efforts.

Deep Dive

Insurance giant IAG New Zealand Limited has been ordered to pay a pecuniary penalty of $11.6 million (NZD 19.5 million) after admitting to widespread fair dealing breaches, marking one of the most significant enforcement outcomes in New Zealand’s financial services sector.

The Financial Markets Authority (FMA) found that IAG made false and misleading representations across its insurance products and failed to adequately maintain systems and processes, resulting in serious harm to customers.

FMA Executive Director of Response and Enforcement Louise Unger underscored the severity of the case, noting that, “the nature and scale of IAG’s contraventions was greater than those present in any other fair dealing case the FMA has to date taken to Court, and the judgment confirms they warrant a significant penalty.”

Justice Andrew described the insurer’s conduct as “the most aggravating feature” of the case, emphasizing that the penalty had to be “set at a level that sends a clear message to the financial market – and particularly similarly large and well-resourced institutions – as to the importance of investing in robust systems and making good on the promises to customers.” He further criticized IAG for its knowledge of the breaches and delays in reporting them, particularly in the wake of the industry’s culture and conduct review.

Scope of Failures

IAG, New Zealand’s largest insurer, admitted to breaches of the Financial Markets Conduct Act (FMCA). These included mis-pricing premiums and failing to apply key discounts across policies sold through its business divisions and distribution partners.

Between September 2021 and December 2024, the company self-reported 41 issues to the FMA, with ten of the most serious matters forming the basis of eight causes of action in court. In total, approximately 269,000 customers were affected, leading to overcharges of around $20.9 million (NZD 35 million). An additional 31 issues, not included in the court pleadings but documented in a schedule, are expected to require a further $12.5 million (NZD 21 million) in remediation.

The penalty factored in reductions for IAG’s cooperation, self-reporting, early admissions, and steps taken to remediate affected customers. Still, the FMA stressed that the case highlights the critical role of robust compliance systems in protecting consumers.

“We will continue to respond to misleading practices to ensure New Zealand has a fair financial system,” Unger said.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.