New Zealand’s largest insurer of doctors has been ordered to pay a $2.1 million penalty for making false and misleading representations to customers.

The Financial Markets Authority Te Mana Tātai Hokohoko (FMA) took action against Medical Assurance Society after it admitted failing to correctly apply multi-policy discounts to some customers who were entitled to them.

MAS also admitted failing to correctly apply inflation adjustments on some policies and miscalculating benefit payments.

At a penalty hearing on Monday, Justice Peter Churchman said MAS breached the Financial Markets Conduct Act and imposed a penalty with a starting point of $3m, a discount of 30% and a final penalty of $2.1m.

False and misleading representations, and associated overcharging, undermined the purposes of the act, Justice Churchman said.

“Customers are entitled to trust in the accuracy of their insurance provider’s communications in its systems but cannot do so where they must double-check pricing and invoices – particularly where, as is the case here, customers could not verify whether amounts charged or benefits paid were correct.”

FMA head of enforcement Margot Gatland said MAS’s breaches were widespread across the whole of its insurance business because of “fundamental flaws” in the design of its systems and processes.

“The issues caused considerable harm to a significant number of MAS’s customers, being more than 16,000 across all issues, and the harm caused by the benefits payment issue affected customers who were at particularly vulnerable times in their lives,” Gatland said.

“While a relatively small insurer by market standards, the net gain MAS made from its breaches was significant.”

According to the judgement, between 2014 and 2022, MAS:

• Did not apply the multi-policy discount or incorrectly applied a lower rate of the discount to premiums owed by some eligible customers. This issue affected approximately 8800 customers, with approximately $3.3m in overcharged premiums;
• Applied an inflation adjustment of 3%, instead of the inflation adjustment specified in policies of customers who had elected to receive an inflation adjustment. This issue affected approximately 6200 customers, with approximately $1.7m in overcharged premiums;
• Made various errors when manually calculating a customer’s benefit payments. These errors resulted in some customers receiving lower benefit payments than they otherwise would have if the errors had not occurred. This issue affected approximately 100 customers, with approximately $1m in underpayments;
• Did not apply the correct no claims bonus grade to premiums owed by some eligible customers. This issue affected approximately 1200 customers, with approximately $572,000 in overcharged premiums.

MAS reported the issues to the FMA between 2019 and 2022, including reporting one of the issues as part of the FMA and Reserve Bank of New Zealand’s Conduct and Culture reviews. MAS was aware of the multi-policy discount issue from at least 2014, but no steps were taken to investigate until the issue was rediscovered in 2019.

MAS has repaid affected customers $6.1m as part of its remediation programme.