Cigna admits making error

An error discovered by Cigna has seen it pinged by the regulator who says this is a case about treating customers fairly.

Wednesday, August 10th 2022, 12:02PM

Cigna Life has admitted to making false and/or misleading representations to customers in proceedings brought by the Financial Markets Authority.

The case centres on how it communicated and charged customers for inflation increases to premiums and cover relating to 52,363 policies.

Cigna chief executive Gail Costa says this issue impacts some Cigna policies that were in-force before it bought OnePath from ANZ. The majority of these policies are no longer on sale, she says.

The FMA alleged Cigna charged around $13.5 million in additional premiums for the increased cover that it provided. However, the issue first began in early 2013 when Cigna changed its indexation rates.

The case though only relates to the time period from April 1, 2014 (when the FMC Act came into force) and early 2019.

The regulator says Cigna’s net gain from this error was around $4.5 million.

The 52,363 affected customers is 52,363, paid aroun $13.5 million in additional premiums. However, Cigna paid out around $6 million in additional claims, paid out $1.8 million in third party commissions, and assessed $1.15 million in additional premium reserves.

From early 2013 until early 2019, Cigna increased customers’ premiums and cover under indexation benefits, on a variety of life insurance policies, using flat rates of indexation that significantly exceeded the CPI, and which were not set with reference to the CPI or the fixed rates contained in customers’ policies, as was required under the relevant policies, the FMA says.

The company communicated these changes to customers on an opt out basis, through annual policy notification letters.

Cigna has admitted to contravening the Fair Dealing provisions of the FMC Act and has filed a Notice of Admissions in the High Court. The matter will proceed to a penalty hearing before the Court where the FMA will seek declarations of contravention, and the parties will submit that Cigna should be ordered to pay a pecuniary penalty.

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 commenced a remediation programme in April 2019. The insurer sent a letter to affected customers about the indexation issue, offering full or partial refunds and/or adjustments to the cover of existing customers.

Costa says, “since the issue was discovered, we’ve been contacting impacted customers to ensure they have the right cover for their needs. Where they haven’t, we’ve offered the option of a refund and lower cover.”

“More than three quarters haven chosen to keep their cover as is. Collectively these customers have benefitted from a significant amount of additional cover without the need for any medical or risk assessment.”

To date Cigna has repaid over $10.7 million (including interest) of additional premiums to customers through its remediation programme.

FMA head of enforcement Margot Gatland said: “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 indexation increases were applied unless the customer actively contacted Cigna to seek a different level of cover. Customers were required to take active steps to understand Cigna’s applied rate and verify its basis.”

“Firms must take care to get their pricing right when applying automatic changes like these. When firms are considering whether to make changes to their practices or processes, they should consider the effects of the changes on their customers, and whether updates are required to the terms of their products or services.”

Following consultation with the FMA, Cigna has agreed to send further letters to certain customers who chose to maintain a higher level of cover, rather than a refund, to advise them of the FMA’s investigation and Cigna’s admissions.

“Those customers will be prompted to ensure their level of cover is adequate for their needs and that they should contact Cigna if they have any questions,” the FMA says.

Gatland said Cigna’s remediation letters to certain customers did not explain that it had applied indexation increases inconsistently with the terms of the customer’s policy and that they had received more cover than they had contracted for, and therefore more cover than they may have wanted.

The FMA acknowledges that Cigna co-operated with the regulator throughout its investigation. Cigna acknowledged and accepted it had contravened the FMC Act at the earliest possible stage in this proceeding.

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