One of the country's largest life insurers AIA has admitted to making false and/or misleading statements to customers.
The Financial Markets Authority have taken court action against AIA based on three core breaches, regarding incorrect and misleading communication to customers holding various life insurance and associated policies.
This includes charging premiums on cancelled policies, treating policies as if they were terminated when they should have remained in force and some customers being charged excess premiums because AIA miscalculated inflation adjustments.
"This case demonstrates that firms providing critical insurance must ensure they have necessary systems and controls in place to perform their core business and manage their customers' policies correctly," FMA head of enforcement Karen Chang said.
"AIA's behaviour exacerbated and prolonged the harm to customers who were already in vulnerable circumstances."
They took out insurance to reduce stress and financial impact in a time of significant hardship and uncertainty, but when some of them needed the cover they thought they had, it was denied, she said
The FMA said AIA has admitted the breaches at an early stage, and the matter would now proceed directly to a penalty hearing before the High Court in Auckland, thus avoiding the necessity and cost of a trial.
The watchdog would seek a penalty of $700,000.
AIA NZ chief executive Nick Stanhope said an internal review had revealed a small number of cases where it had fallen short of its own standards.
"Since self-disclosing these issues to the FMA, we have worked relentlessly to remediate these complex issues, whilst engaging and cooperating with the FMA throughout.
"Our remediation process is complete and, if a customer was impacted by one of the issues, they have already heard from us directly and we have put the issue right. "