FMA lands its biggest ever penalty

In August, Cigna admitted to breaching the Fair Dealing provisions of the Financial Markets Conduct Act, following proceedings brought by the Financial Markets Authority.

The case relates to Cigna’s communication of, and charging for, inflation benefits (known as “indexation”) to customers holding 52,363 policies between 1 April 2014 (when the FMC Act came into force) and early 2019.

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

Cigna charged around $13.5 million in additional premiums for the increased cover that it provided. However, its “net gain” was around $4.5 million because it paid out around $6 million in additional claims relating to the additional premiums, $1.8 million in third-party commissions, and assessed $1.15 million in additional premium reserves. Cigna says that its net gain will continue to reduce as future claims are paid out.