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Wednesday, September 19, 2012

IAG – policy miscalculation understated policy values

Last year IAG reported to the Securities Commission it had miscalculated some home insurance policies by not applying correct inflation values to the policies (policies were under compensated for inflation).

This problem involves some types of policies issued by State, Lantern, Corporate Partners, Co-operative Bank,  and NZI. AMI policies were not affected by the miscalculation. According to IAG’s media release all policy holders have either been contacted, or will be contacted soon.

From the Commerce Commission’s website:

IAG discovered an error in August 2011 while assessing Canterbury earthquake claims and advised the Commission in October 2011. The problem affects some house and contents insurance policies offered by NZI, Lantern, ASB, BNZ and Co-operative Bank. IAG miscalculated the sum insured in 643 previously paid out total loss insurance claims. The same error will also affect the renewal of 150,755 current policies. 

The policies affected date back to 1980 in some cases, and include a sum insured which was to be automatically adjusted each year to reflect rising inflation. In fact the sum insured adjustments were incorrectly set below the rate of inflation for much of that period. The result has been that the sum insured for some people is less than it should be.

As part of the settlement, IAG estimates that it will make payments of up to $3.48 million to affected customers who have previously been paid out on total loss insurance claims, and those with total loss claims, to reflect what they should have received, or are due to receive. IAG will also offer the more than 150,755 current policyholders the option of either accepting an increased sum insured amount and therefore a higher insurance premium or agreeing a different value.

There is a statement from IAG here and the Commerce Commission here. Full settlement details can be downloaded from the Commerce Commission’s website here, and a settlement FAQ from here.

Media reports can be found on NBR (here), Press (here), and the NZ Herald (here).

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