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19 January 2023

Cigna fined $3.5m for overcharging customers with life insurance

Insurer penalised for making false and misleading claims.

Insurer Cigna has been fined $3.5 million in the High Court for over-charging 52,363 customers for their life insurance premiums.

The customers affected automatically had their life insurance premiums rise annually in line with inflation. The practice netted Cigna an extra $13m from premiums and resulted in a $4.556m net gain after costs and payouts.

Insurers generally give customers the option of increasing premiums – called indexation – so cover keeps up with the rate of inflation in the Consumer Price Index (CPI).

However, Cigna set the premium increases with no reference to CPI inflation data, between early 2013 and 2019. Instead, it used its own rates which significantly exceeded inflation.

Cigna then applied the price rise to customers’ policies automatically, unless the customer opted out.

The average extra amount paid by individuals for policies was $258, however one customer over the six-year period paid $33,370 in excess premiums.

Margot Gatland, head of enforcement at the Financial Markets Authority (FMA), said: “Cigna’s conduct affected many of its customers, who trusted the firm to be transparent and look after their interests. This judgment sends a strong message to the industry that firms need to give due regard to customers’ interests, including when making pricing changes and communicating them.” 

We hope the industry heeds the FMA’s warning. Our own data has shown a steady drop in satisfaction with life insurance providers.

Over the past five years, the number of very satisfied customers has slipped from 39% to 26% – the biggest drop across the five insurance products we survey (car, house, contents, health and life).

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