South African-owned insurer, Youi Insurance, entered guilty pleas to 15 charges laid by the Commerce Commission in early August. The charges, brought under the Fair Trading Act, are in response to a number of illicit practices carried out by Youi sales staff.
The questionable sales tactics were initially uncovered by journalist Diana Clement, who rang Youi for a quote in respect of a separate insurance story she was working on. Clement then gathered further information from a large number of Youi customers and ex-employees. The most serious allegations include:
- When generating quotes, sales staff would routinely manipulate the data they entered into the system by asking the customer strategic questions in order to generate a lower premium. For example, getting the customer to say their car was "charcoal" coloured, rather than "black", as this would generate a lower premium. Sometimes this would be done without the knowledge of the customer. For example, a car would be recorded as being garaged despite the customer having told the sales staff that they have no garage. Lower premiums meant the customer was more likely to accept the policy. However, often when the customer tried to claim on these policies, they would be considered void due to the customer's misrepresentation. Manipulation of data was so common there was in-house jargon for the practice: staff called it “maniping”.
- Forcing customers to give payment information when only a quote was requested. Despite the customer being promised they would not be charged, and without signing any documentation, routinely they would nonetheless be charged
- Staff failed to cancel policies when requested, including repeatedly hanging up on customers ringing to try and cancel a policy. The same tactics would be used when customers would try to query why they had been charged for a policy when only a quote had been requested (and expressly, not accepted)
- Youi's standard contents insurance policies do not include cover for accidental damage or away from home coverage, despite these being standard in the industry. Customers were not made aware that these came at additional costs, and many did not discover these were not included in their policies until they tried to make claims.
Youi initially denied the allegations, claiming at first that the customers had mis-represented what happened in their calls. Later, it said that the transgressions were caused by "rogue employees".
However, Clement's investigation was thorough and revealed the problem to be systematic. In particular, it seemed Youi's number was up when ex-Youi staff revealed that Youi's performance-based bonus structure meant that sales staff were rewarded for the number of sales they made, regardless of the legitimacy of the policies. Managers were also rewarded for the number of sales their team made. As a result, managers would not only pressure their staff to engage in data manipulation, but would teach them how to effectively manipulate data.
The quantum of the penalty the Commerce Commission will seek is still unknown. Meanwhile, the Insurance Council of New Zealand (ICNZ) has imposed the maximum fine possible on Youi, $100,000. However, ICNZ stopped short of imposing the harshest penalty possible, which is membership termination. ICNZ president, Chris Black, said that this option was seriously considered by the regulator.
Youi has accepted the fine, commenting: "Unfortunately, we haven't got everything 100 per cent right and we found flaws in our customer service procedures. This includes charging a small percentage of customers for insurance policies when they only asked for quotes."