New Zealand’s largest general insurer, IAG New Zealand Limited, has been ordered to pay a NZ$19.5 million (A$17.2m) penalty after admitting to extensive breaches of fair dealing laws that affected hundreds of thousands of customers.
The Financial Markets Authority (FMA) said the case represented the most serious contraventions it had yet taken to court, following a multi-year investigation into pricing and discount errors across IAG’s product range.
FMA Executive Director of Response and Enforcement, Louise Unger, said: “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.”
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Unger said the case should serve as a clear warning to large, sophisticated financial institutions about their obligations to customers. “IAG is New Zealand’s largest insurer. It is a large and sophisticated market leader and accordingly plays a vital role in upholding market standards, yet its significant underinvestment led to widespread failures of its systems and processes, to the detriment of its customers.”
The High Court in Auckland found that IAG made false or misleading representations about its insurance products, breaching the Financial Markets Conduct Act. Justice Andrew described “the nature and extent of IAG’s contraventions” as the most aggravating feature of the case, adding that the penalty must send “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.”
The court also noted IAG’s delay in alerting the regulator, calling its “knowledge of the breaches and the delay in reporting them to the FMA, particularly following the culture and conduct review, an aggravating factor.”
Between 2021 and 2024, IAG self-reported 41 separate issues to the FMA, ten of which formed the basis of the proceeding. Those breaches affected roughly 269,000 customers, leading to overcharges totalling about $35 million. An additional 31 issues, involving a further $21 million in customer remediation, were not part of the case but were included in the court record as context for IAG’s conduct.
IAG’s response after identifying the issues was noted as exemplary by the regulator. “IAG’s exemplary conduct in response to the FMA’s investigation must also be acknowledged,” said Margot Gatland, the FMA’s head of enforcement. “IAG’s self-reporting was followed by its very early admission of liability, and its full cooperation including its commitment to an undefended proceeding.”
In its own statement, IAG said it recognised that “historically it made mistakes.” Chief executive Amanda Whiting said the company’s focus had been on “putting this right for our customers who were impacted, providing them with their refund and apologising for our mistakes. We are doing everything to prevent these issues happening again.”
The penalty incorporated reductions for IAG’s early cooperation, self-reporting, and remediation work. Unger said the outcome reflected both the seriousness of the conduct and the importance of transparency in the insurance sector. “The penalty has been 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 made to customers.”
The case is a significant moment for IAG New Zealand, which dominates the local market through brands including State, AMI, NZI and Lumley. The insurer, part of the ASX-listed Insurance Australia Group, employs more than 4,000 people and has relationships with about half of New Zealand households.
Its operations date back to 1989, though it traces its insurance heritage to 1859. The company insures more than NZ$1 trillion in commercial and domestic assets, making it a critical pillar of New Zealand’s financial system.
Over recent years, IAG NZ has emphasised sustainability, innovation and customer service, including investing in hybrid fleets and modernised repair hubs. Yet the scale of the penalty underscores the challenges facing even the most established market leaders as regulators tighten expectations around conduct and compliance.
For the FMA, the case reflects a broader shift towards accountability in financial services. “We will continue to respond to misleading practices to ensure New Zealand has a fair financial system,” Unger said.
For insurers and intermediaries, the message is equally direct: legacy systems, outdated pricing models and weak oversight can no longer be defended as growing pains. The IAG case demonstrates that even voluntary reporting and cooperation will not shield a firm from significant penalties when customer detriment is systemic.
With climate risk, digital transformation and consumer trust already testing insurers’ resilience, the industry’s largest player in New Zealand has learned an expensive lesson in the cost of complacency.
1. ASB Multi-Policy Discount issue
IAG failed to apply the multi-policy discount consistently for customers holding two or more ASB-branded policies. Some customers who qualified for the discount didn’t receive it, while others were incorrectly told they were eligible when they weren’t. This meant that premiums charged did not match the pricing representations made at the point of sale.
2. No Claims Bonus issue
Certain customers entitled to a no claims bonus did not receive it as promised. For example, some AMI customers lost the benefit of making two at-fault claims in a year without affecting their no claims status. In other cases, particularly among Westpac customers, system errors led to higher premiums being charged than those quoted or shown on renewal notices.
3. Westpac Owner-Occupier Discount issue
Westpac-branded customers who insured an owner-occupied home were meant to receive a discount on related motor, contents, or boat policies under the same brand. IAG’s systems applied this discount inconsistently, resulting in some eligible customers paying full price despite representations that they would receive a bundled rate.
4. Minimum Premium issue
Several product lines — including home, contents, vehicle, and boat insurance — used pricing systems with a “minimum premium” floor. This algorithmic feature prevented some discounts from being properly applied. As a result, customers were led to believe they were receiving full discounts when the pricing engine was effectively blocking them once the minimum threshold was reached.
5. BNZ / Co-operative Bank Multi-Policy Discount issue
Customers with BNZ or Co-operative Bank insurance policies who held more than one policy under the same brand were entitled to a multi-policy discount. However, this was not applied consistently. In some cases, IAG’s eligibility criteria were incorrectly displayed on the Co-operative Bank website, meaning customers were misinformed about whether they qualified.
6. Multi-Dwelling issue
For some ASB and AMI home policies, the insurer miscounted or misrepresented the number of dwellings covered. This error affected the calculation of government levies — such as those collected for the Earthquake Commission and Fire and Emergency New Zealand — and led to certain customers being overcharged on both premiums and levies.
7. Non-Optional Extension issue
Some BNZ and Co-operative Bank home policies included a non-optional glass breakage extension. IAG’s pricing systems treated this as if it were optional, meaning that customers did not receive applicable discounts on that portion of their cover. Because the extension was mandatory, the discount should have been applied to the total premium, including that cost.
8. High-Value and Tesla Vehicle Multi-Policy Discount issue
IAG indicated that high-value vehicle and Tesla owners would qualify for multi-policy discounts on the same basis as other customers. In practice, different eligibility rules applied, and some customers who believed they qualified for the discount did not receive it. The representation therefore overstated the discount entitlement.
