New Zealand insurer Tower has been penalised $NZ7 million ($6.1 million) for failing to pass on premium savings to customers under its multipolicy discount program.

The failures occurred from September 2016 to February this year, causing overcharges of more than $NZ11 million ($906 million).

Tower says it has moved to address the issue, including compensating customers, and it plans to stop offering multipolicy discounts, as announced in July.

The Financial Markets Authority – which launched civil proceedings last year after the insurer self-reported the matter in 2021 – says about 61,000 customers with 90,200 policies were affected. They represented 11% of Tower’s customer base.

“Tower’s issues stemmed from deficiencies in its systems that meant the insurer failed to deliver to customers a publicly advertised discount,” FMA head of enforcement Margot Gatland said today. “Tower used the advertised [discounts] to attract and retain customers, without having systems that could reliably deliver on the promised discount.”

The High Court in Auckland ordered the penalty after Tower admitted breaking financial market conduct laws and making false or misleading representations in marketing material.

Tower has offered discounts to customers with multiple qualifying policies for more than two decades. 

In 2017 it agreed a settlement deal with the Commerce Commission, pledging to fix its policy system, which caused a historic issue leading to the miscalculation of multipolicy discounts, the FMA says.

Tower says it has made “significant investments” in improving systems and processes, and its “comprehensive” program to compensate customers is nearing completion.

The compensation, including interest, is expected to total $NZ12 million ($10.47 million).

“The FMA and Tower agreed that these contraventions were the result of failures in systems and processes, not management decisions,” it said.

“The court also noted that Tower undercharged customers over the same period, which substantiated that the errors were unintentional and not for profit-making motives.”

Tower says the $NZ7 million penalty has been provisioned for.

Chair Michael Stiassny added: “Tower acted in good faith and fully acknowledged that mistakes were made. We accept and regret the impact this has had on our customers and apologise unreservedly to those who were charged inaccurately.”