FINANCIAL MARKETS AUTHORITY v CIGNA LIFE INSURANCE NEW ZEALAND LIMITED [2022] NZHC 3610

FINANCIAL MARKETS AUTHORITY v CIGNA LIFE INSURANCE NEW ZEALAND LIMITED [2022]NZHC 3610 [22 December 2022]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV 2022-485-422[2022] NZHC 3610UNDER the Financial Markets Conduct Act 2013BETWEEN FINANCIAL MARKETS AUTHORITYPlaintiffAND CIGNA LIFE INSURANCE NEWZEALAND LIMITEDDefendantHearing: 17 October 2022Counsel: F J Cuncannon and P I C Comrie-Thomson for PlaintiffB A Keown and K E Crichton for DefendantJudgment: 22 December 2022JUDGMENT OF MALLON JTable of contentsIntroduction [1]Agreed facts [4]Background [4]Misleading conduct (premiums) [10]Misleading conduct (annual notification letters) [13]Reviews and external advice [16]Remediation programme [29]Impact of misleading conduct [30]Other contraventions [33]Relationship of trust [34]Cigna's size and resources [35]Process improvements and cooperation [37]The Financial Markets Conduct Act [39]Assessment [47]The court's role [47]Approach to setting a penalty [49]Maximum penalty [51]Starting point [55]Personal aggravating factors [63]Personal mitigating factors [64]Result [73]Introduction[1] Cigna Life Insurance New Zealand Limited (Cigna) is an insurer operating inNew Zealand. It offers a range of insurance products to New Zealand customers,including life, income protection, trauma, accidental death, bill protection andpermanent disability cover. It admits that it made false or misleading representationsto its customers in breach of the Financial Markets Conduct Act 2013 (the Act).1 Itaccepts that a pecuniary penalty is to be imposed for that breach.[2] The Financial Markets Authority (FMA) and Cigna recommend that the Courtimpose a starting point for that penalty of $5.5 million. They have not reachedagreement on a recommended discount for mitigating factors. The FMA submits thatthe discount should not exceed 30 per cent of the starting point whereas Cignaconsiders that the discount should be up to 40 per cent of the agreed starting point.[3] The FMA also seeks a declaration of contravention2 and an order that thepecuniary penalty is first applied to the FMA's actual costs in bringing thisproceeding.3 Cigna does not oppose the declaration or order.Agreed facts4Background[4] Cigna entered into policies with its customers under its own name, as well ascontracts that carried the branding of third parties but that were underwritten by Cigna.The policies with the branding of third parties were referred to as "white label"policies. Cigna administered the policies by communicating with customers regardingpolicy documentation, cover and premium.[5] The policies (including white label policies) often included "indexation"benefits. This allowed for increases to be made to a customer's cover and premiumsto keep up with inflation without requiring any further underwriting assessment.1 Financial Markets Conduct Act 2013, ss 22(d), (f) and (h).2 Section 486.3 Section 484(1)(b).4 In addition to the facts pleaded in the statement of claim and accepted by Cigna, the parties fileda comprehensive agreed statement of facts pursuant to the Evidence Act 2006, s 9.During the period 25 January 2013 to 21 November 2019 Cigna employed indexationclauses in at least 40 different types of policies (relevant policy types). These relevantpolicy types either had variable-rate or fixed-rate clauses.[6] There were at least 33 types of policies that had variable-rate clauses. Of these:(a) Twenty-nine provided that Cigna may or would offer a customer anannual increase to their cover on a compounding basis, subject to aspecified minimum or maximum percentage. They also provided thatthe amount of the increase would be determined by Cigna based on theConsumer Price Index (CPI) or inflation.(b) Four provided that the customer's cover would be increased at theofficial rate of inflation subject to a specified minimum or maximumpercentage on a compounding basis (official rate of inflation clause).[7] There were at least seven types of policies that had fixed-rate clauses. Theseprovided for indexation increases to occur at pre-specified fixed rates of three per cent,five per cent or 10 per cent. Of these:(a) Five provided that the customer's premium amount and cover wouldincrease by the specified percentage of the original cover on theanniversary date that the policy was originally issued.(b) Two provided that Cigna may or would offer a yearly increase at thespecified percentage on each anniversary date to help keep thecustomer's cover up to date with inflation; and the customer did nothave to accept an indexation increase but no further increases would beoffered if the customer declined three successive indexation increases.[8] Prior to March 2013 Cigna generally applied indexation rates in line with theaverage rate of CPI for policies with variable-rate clauses and the relevant fixed ratefor the policies with the fixed-rate clauses. The conduct at issue began in 2013 andcontinued until 2019 (a six-year period). During this six-year period the CPI rangedfrom 0.1 per cent to 2.2 per cent and averaged 1.12 per cent.[9] The background to the conduct began with a decision in around October 2012to move the indexation rate from 5.3 per cent to 2.5 per cent for many policies thatcontained variable-rate clauses. This change was made to reflect a drop in the CPIrate that was closer to one per cent and the minimum indexation in certain policies oftwo per cent and 2.5 per cent. Cigna's senior management discussed this change inlate December 2012. They discussed that there had been no sign off for this changeand no consideration had been given to the impact it would have for revenues andsales. Senior management decided to apply the five per cent indexation rate to policiesthat contained variable-rate clauses.Misleading conduct (premiums)[10] After the December 2012 senior management discussion:(a) Between March 2013 until about 31 March 2019 Cigna applied a flatindexation rate of 10 per cent on a simple-interest basis on some"accidental death insurance" policies that had variable-rate clauses.(b) Between March 2013 until about 30 September 2015 Cigna applied afive per cent indexation rate on a compounding basis to policies thathad the official rate of inflation variable-rate clauses (refer [6(b)]above). From about 1 October 2015 until 31 March 2019 Cignaadopted the CPI rate as at 1 March 2015 (0.3 per cent) as the indexationrate for the variable-rate policies that had the official rate of inflation5clauses.(c) The five per cent indexation rate was automatically applied to othervariable-rate clause policies, other than those where the 10 per cent ratewas applied (refer (a) above), renewed on or after 1 March 2013 until31 March 2019. This rate was applied unless customers decided not to5 See statement of claim at [8(b)] but compare with [33] of the agreed statement of facts. See n 7below.accept this increase or sought an increase of an alternative amount.Cigna applied this rate having considered, but not actioned, amendingthe policy documents to remove any dependence on the CPI goingforward.[11] Together these policies are referred to as the affected policies.[12] By applying flat rates that were not set by reference to CPI or the fixed ratecontained in the policy, Cigna made false and misleading representations to customerswith the variable-rate and fixed-rate clauses. In charging premiums on the basis ofthose flat rates, Cigna falsely or misleadingly represented that the indexation increasehad been calculated in accordance with the customer's policy and that Cigna wasentitled to charge the premium.Misleading conduct (annual notification letters)[13] In general, each policy would automatically renew on the anniversary date untilthe policy was cancelled or the termination date in the policy was reached. Aroundfive weeks before the anniversary date, Cigna would notify the customer of anyindexation increase. The annual notification letter advised the customer that theindexation increase would automatically apply unless the customer opted out of theincrease by contacting Cigna.[14] During the period 25 January 2013 to 21 November 2019 Cigna had standard-form annual notification letters. Their content varied over time:6(a) Type 1 letter: This was used between 25 January 2013 and October2015. The letter stated that:(i) the customer's cover was adjusted annually to ensure it kept itsoriginal value as inflation increased;6 From October 2015 the standard form annual notification letters varied depending the type ofpolicy, whether the policies included provision for indexation and whether the policy included aprovision for rerating.(ii) Cigna used the most recent increase in CPI to calculate theincrease in cover; and(iii) the new premium would be charged to the customer unless thecustomer advised Cigna that it did not want to accept the"inflation adjustment".(b) Type 2 letter: this was used from October 2015 until at least19 November 2019. The letter stated that:(i) the increase (either 10 per cent or five per cent) was to help keepthe customer's cover up to date and to protect against inflation(with an asterisk that said that it was subject to any limitation inthe policy);(ii) the increase was guaranteed regardless of the customer's currenthealth;(iii) the customer did not have to accept the increase if they wantedto keep cover at the existing level, but the new premium wouldbe charged unless they advised Cigna that they wanted to leavecover at the existing level; and(iv) the customer could contact Cigna if they wanted to discuss theiroptions or any other matter relating to their policy.(c) Type 3 letter: this was used from October 2015 until at least 26 May2016. It stated that:(i) the customer's cover was adjusted on its anniversary date to takeinto account the customer's age and inflation;(ii) to help make sure the value of the policy did not decrease overtime and to help keep the cover up to date and to protect againstinflation, the customer's cover could be increased by(depending on the policy) either 10 per cent or five per cent(with an asterisk stating that this was subject to any limitationwithin the policy);(iii) the increase was guaranteed regardless of the customer's currenthealth;(iv) the customer did not have to accept it if they wanted to keepcover at the existing level, and if the customer wanted toincrease their cover to a different level than the percentageincrease in the letter, then Cigna would be pleased to help andthe customer should contact Cigna as soon as possible;(v) but the new premium would be charged to the customer unlessthey advised Cigna that they wanted to leave cover at theexisting level or wanted to increase their cover by a differentamount; and(vi) the customer should contact Cigna if they wanted to discusstheir options or any other matter relating to the policy.(d) Type 3A letter: this was used by Cigna from 26 May 2016 until at least21 November 2019. The letter stated that:(i) to ensure the value of the customer's policy did not decreaseover time, to help keep the customer's cover up to date and toprotect against inflation, the customer's cover would beincreased by (depending on the policy) either 10 per cent or fiveper cent (with an asterisk stating that this was subject to anylimitation within the policy);(ii) the increase was guaranteed regardless of the customer's currenthealth;(iii) the customer did not have to accept if they wanted to keep coverat the existing level, but the new premium would be charged tothe customer unless the customer advised Cigna that theywanted to leave the cover at the existing level; and(iv) if the customer wanted to increase their cover to a differentamount, they should contact Cigna as soon as possible and theyshould also contact Cigna if they wanted to discuss their optionsor any other matter relating to their policy.[15] By applying flat rates that were not set by reference to CPI or the fixed ratecontained in the policy, Cigna made false and misleading representations to customerswith the variable-rate and fixed-rate clauses in its letters. In particular, it made falseand misleading representations that:(a) the specified increase had been calculated in accordance with thecustomer's policy;(b) for Type 1 letters, that the CPI had been used to calculate the specifiedindexation increase;(c) for Type 2, 3 and 3A letters, that the specified increase was based on areasonable measure of inflation and/or linked to CPI; and(d) Cigna was entitled to charge the premiums specified in the letters.Reviews and external advice[16] Cigna sought some legal advice in 2012 from an external, appropriatelyqualified lawyer, prior to implementing the five per cent indexation rate.[17] Cigna reviewed its indexation practices in 2014 and 2015. The 2015indexation review arose out of concerns raised by Cigna's appointed actuary in 2015as to whether Cigna was operating in accordance with the policy wording for thevariable-rate clauses. It made some changes to its practices. Cigna also obtained legaladvice in 2015 from the same lawyer about the flat indexation rates it was applyingand its annual notification letters. It also obtained advice from the same lawyer on the2017 annual notification letters.[18] Cigna generally followed the 2015 and 2017 legal advice. It did this byreducing the indexation rate to 0.3 per cent for policies with the official rate ofinflation7 clauses. It also followed the advice by amending the annual notificationletters. However, it did not individually review its many policy wordings, nor amendits indexation rates each year to maintain some relativity with CPI, nor amend itspolicy wordings going forward to avoid the issue altogether.[19] Cigna acknowledges that it did not give sufficient consideration to whether ornot the 0.3 per cent, the five per cent or 10 per cent indexation rates (refer [10] above)reflected customer expectations. Customers could opt out of the automatic indexationincrease. Following 2015, they were expressly given the option in the annualnotification letters to increase their cover by a different amount. However, the burdenwas on the customer to determine whether an alternative indexation rate would bettermeet their needs.[20] Cigna also acknowledges that it ought to have considered more carefullywhether changes to its policy documents and communications were required to ensureits existing and future customers would not be misled. It acknowledges that itcontinued to sell policies with the unamended variable-rate clauses after it had adoptedthe five and 10 per cent indexation rates referred to above ([10(a) and (b)]) betweenJanuary 2013 and March 2019.[21] Following a 2018 review, in about January 2019 it changed the indexation ratefor affected policies with variable-rate clauses to two per cent (the published CPI rateat the time) to take effect on the anniversary dates of those policies on or after 1 April2019. On 21 November 2019 Cigna changed its system to set the rate of indexationto match CPI. This took effect for affected policies with variable-rate clauses on theanniversary dates of the policies on or after 1 February 2019.7 The agreed statement of facts at [33] refers to official rate of "Indexation" clauses. This appearsto be a mistake as the agreed pleading refers to the official rate of "inflation" clauses.[22] The FMA acknowledges that Cigna did not intend to breach the Act.Remediation programme[23] In June 2018 the FMA and the Reserve Bank of New Zealand commenced ajoint Conduct and Cultural Review into the conduct and culture of New Zealand lifeinsurers.8 Following this review, in around February 2019 Cigna commenced aninvestigation and self-reported to the FMA that it had applied indexation at ratesexceeding CPI. In about September 2019 Cigna initiated a remediation programme.This covered all policies where the indexation rates applied did not match the rate ofCPI (for policies with variable-rate clauses) or the fixed rate (for policies with fixed-rate clauses) between March 2013 and January 2021.[24] The remediation programme provided different offers depending on thefollowing classifications:(a) Customers who had received indexation rate increases and whocontinued to hold policies: they were offered the option of maintainingthe higher cover and associated premiums or reducing their cover to thelevel it would have been had indexation matched CPI or the relevantfixed rate and a refund of the additional premium charged for the higherindexation applied.(b) Existing customers who had declined indexation rate increases: theywere offered the option of maintaining their lower level of cover andassociated premiums or increasing their cover and associated premiumsto the level it would have been had indexation matched CPI or therelevant fixed rate.(c) Existing customers who received indexation increases in some yearsbut declined them in other years: they were offered the options in (a)and (b) as applicable in each year.8 I understand from counsel at the hearing that this was a general review. It did not relate directlyto the conduct at issue here.(d) Existing customers with fixed-rate clauses who received a lowerindexation rate than they were entitled to under their policy: they wereoffered the option of adjusting their cover to the level that ought to haveapplied.(e) Customers who received indexation increases but who no longer heldpolicies: they were offered a refund reflecting the amount charged forpremiums above the amount they would have been charged hadindexation matched CPI or the relevant fixed rate unless the refund was$20 or less and they had not contacted Cigna – in which case Cignaretained the amount for payment to charity.[25] Cigna also grouped affected former and existing customers into seven groupsbased on their potential refund (ranging between $20 or less and up to $7,000 or more).These groupings determined the type of communication they would receive. Those inthe group with the highest potential refund received a letter, a phone call from a Cignasenior executive, a dedicated case manager, and a notification to the customer's broker.Former customers with a potential refund of $20 or less were not proactivelycontacted. In between these groups, customers received a letter or email, or a letterand email with different levels of follow up.[26] Cigna also developed eight template letters to cover the different ways thatexisting customers may have been affected. It developed separate letters for existingand former customers where the potential refund was $20 or less. In October 2019Cigna also advised the FMA of the approach it was intending to take to remediation.Its aim was to ensure that customers did not feel they had been disadvantaged byCigna's indexation practices.[27] The FMA considered that two of Cigna's eight template letters (which appliedto 23,502 and 1,246 policies respectively) did not explain that Cigna had appliedindexation increases that were inconsistent with the terms of the customer's policy,nor that they had received more cover than they had contracted for and therefore morecover than they may have wanted.[28] Cigna therefore agreed to send further letters to customers who received theseletters and elected to maintain their existing cover. These letters would:(a) explain that the FMA had completed an investigation and that Cignaadmitted it applied indexation rates that were inconsistent with thecustomer's policy;(b) say that, in its earlier communications Cigna had already givencustomers the choice to change their level of cover to ensure it was rightfor them; and(c) say that customers should continue to ensure that their cover is right forthem and they should contact Cigna if they have any questions abouttheir cover or the letter.[29] As at 8 August 2022 (the date of the agreed statement of facts) Cigna had repaid$10,786,685 (including interest) of additional premiums to customers through itsremediation programme.Impact of misleading conduct[30] The total number of affected policies to which the five per cent, 10 per cent or0.3 per cent indexation rates, rather than indexation rates based on CPI or the relevantfixed rate were applied, was 52,363. By applying these rates rather than the policyindexation rates, customers paid $13,522,689.54 in additional premiums under theaffected policies between 1 April 2014 and 31 March 2019. The average amount ofadditional premium paid by a customer was a total of $258 over the six-year period,the median paid was a total of $69 and the maximum paid by a customer was a totalof $33,370.29 over the same six-year period.[31] On the other side of the coin, customers under these policies receivedadditional cover totalling $841 million, without an underwriting assessment, andCigna was correspondingly at risk for that total additional cover. This correspondedto an average total of $32,500 of additional cover per customer over the six-yearperiod.[32] From the additional premiums charged of $13,522,689.54, Cigna has paid outaround $6,051,000 as a result of the additional cover provided, paid out $1,765,000 inthird party commissions, and assessed $1,150,000 in additional premium reserves. Onthis basis, Cigna's net gain is around $4,556,000. This net gain will continue to reduceover time as future claims are paid out in respect of the additional cover.Other contraventions[33] Cigna has admitted liability under s 536 of the Act for breaches relating tomisleading representations ANZ Bank made when issuing monthly credit cardrepayment insurance policies with Cigna. Cigna has entered into an undertaking withthe FMA about this. However, the indexation issues and Cigna's self-report of thempredate the credit card repayment insurance policy issue and its self-report of thoseissues. The FMA therefore considers that in the present case Cigna can be treated asa party that has not previously contravened the Act.Relationship of trust[34] Cigna acknowledges that providers of financial services, including insurers,have a special relationship of trust with their customers. It also acknowledges thatcustomers are entitled to trust that Cigna will be clear and transparent in itscommunications with its customers.Cigna's size and resources[35] Cigna is a wholly-owned subsidiary of Cigna New Zealand Holdings Limited.Its ultimate parent is Chubb Limited. Chubb Limited is a Fortune 500 insurance andfinancial services company.[36] Cigna's premium revenue from insurance contracts for the year ended31 December 2020 was $270,969,000 and for the year ended 31 December 2021 was$302,629,000.Process improvements and cooperation[37] In early 2019 Cigna adopted an enhanced development process. In January2020 it adopted enhanced formal processes for identifying and applying indexationincreases.[38] At an early stage Cigna advised the FMA of its intended remediation approachand customer contact. It kept the FMA informed of the steps it was taking throughoutthe process. It kept the FMA up to date with its customer contact and remediationprogramme. It also cooperated with the FMA throughout the investigation. It acceptedit had contravened the Act at the earliest stage. It agreed to settle the presentproceeding on terms acceptable to the FMA.The Financial Markets Conduct Act[39] The Act was enacted as part of reforms made in response to the global financialcrisis. Its purposes include to:9(a) promote the confident and informed participation of businesses,investors, and consumers in the financial markets;(b) promote and facilitate the development of fair, efficient and transparentfinancial markets; and(c) provide for timely, accurate and understandable information to beprovided to persons to assist them to make decisions relating tofinancial products or the provision of financial services.[40] Part 2 of the Act provides "fair dealing" provisions. For present purposes therelevant fair dealing provision is s 22. It provides:22 False or misleading representationsA person must not, in trade, in connection with any dealing in financialproducts, the supply or possible supply of financial services, or the promotion9 Financial Markets Conduct Act, ss 3 and 4.by any means of the supply or use of financial services, make a falserepresentation—(d) that products or services have any sponsorship, approval,endorsement, performance characteristics, accessories, uses, orbenefits; or(f) with respect to the price of the products or services; or(h) concerning the existence, exclusion, or effect of any condition,warranty, guarantee, right, or remedy, including (to avoid doubt) inrelation to any guarantee, right, or remedy available under theConsumer Guarantees Act 1993.[41] Cigna accepts it was supplying financial services and that it made false ormisleading representations in its letters and the premiums charged that breacheds 22(d) (performance characteristics or benefits of the indexation increases), s 22(f)(price, relating to the increase in premium), and s 22(h) (right to charge the increasein premium).[42] Section 38 provides that a contravention of s 22 may give rise to civil liabilityunder subpart 3 of Part 8 of the Act, including a pecuniary penalty. It also provides apecuniary penalty may not exceed the greatest of:10(a) "the consideration for the relevant transaction";(b) three times the amount of the gain made or loss avoided; and(c) $1 million in the case of an individual or $5 million in any other case.[43] Sections 489 and 490 are included in subpart 3 of Part 8 of the Act. Section 489provides that the FMA may apply for a pecuniary penalty under the Act.11 It alsoprovides that, if the FMA does so apply, the court:1210 Section 38(2).11 Section 489(1).12 Section 489(2).(a) must determine whether the person has contravened a relevantprovision (here, s 22);(b) must make a declaration of contravention if it is satisfied that the personhas contravened a relevant provision; and(c) may order the person to pay to the Crown a pecuniary penalty that thecourt considers appropriate if is satisfied that the person hascontravened a relevant provision.[44] Consistently with s 38, s 490 provides that the maximum amount of a pecuniarypenalty is the greatest of:(a) the "consideration for the transaction that constituted the contravention(if any)";13(b) if it can be readily ascertained, three times the amount of the gain made,or the loss avoided, by the person who "contravened" the relevantprovision;14 and(c) $1 million in the case of a contravention of an individual or $5 millionin any other case.15[45] Section 492 sets out a non-exhaustive list of relevant factors that the court musthave regard to in determining an appropriate penalty. As relevant to the present case,they include: the purposes of the Act; the nature and extent of the contravention; thenature and extent of any loss suffered by a person, or gains made by the person incontravention; whether a person has paid compensation; the circumstances in whichthe contravention took place; whether the person in contravention has previously beenfound by the court to have contravened the Act or another enactment or to haveengaged in any similar conduct; and the relationship of the parties to "the transactionconstituting the contravention".1613 Section 490(1)(a).14 Section 490(1)(b).15 Section 490(1)(c).16 Section 492(a)–(f) and (h).[46] Section 493 provides that, if the court orders that a person pay a pecuniarypenalty, the court must also order that the penalty must be applied first to the FMA'sactual costs in bringing the proceeding.AssessmentThe court's role[47] It is accepted that Cigna breached s 22 as alleged. It is also accepted that it isappropriate to order a pecuniary penalty. Most of the components of an appropriatepenalty are also accepted. The court's role when asked to approve a pecuniary penaltyagreed between the parties as part of a settlement of a proceeding under comparablelegislation is well settled.17 It has also been applied under the Act. The court does notembark on its own enquiry. Rather, it considers whether the agreed penalty is in theproper range. This reflects the interests of the parties in having agreed a resolutionand the public interest in promoting a resolution and thereby avoiding costly, time-consuming and uncertain litigation.[48] I agree with the parties that this approach remains applicable here where mostof the components of an appropriate penalty have been agreed and their area ofdisagreement is of narrow compass.Approach to setting a penalty[49] In Financial Markets Authority v ANZ Bank New Zealand Ltd the Courtadopted a three stage-framework:1817 For example Commerce Commission v New Zealand Milk Corporation Ltd [1994] 2 NZLR 730(HC) at 553; Commerce Commission v Kuehne + Nagel International AG [2014] NZHC 705 at[21]; Commerce Commission v Air New Zealand Ltd [2013] NZHC 1414, (2013) 13 TCLR 618 at[23]; Commerce Commission v Visy Board (NZ) Ltd [2013] NZHC 2097, (2013) 13 TCLR 628 at[34]; Commerce Commission v Carter Holt Harvey Ltd [2014] NZHC 531 at [30]; CommerceCommission v Aurora Energy Ltd [2020] NZHC 610 at [3]; Commerce Commission v First GasLtd [2019] NZHC 231 at [3]; and Reserve Bank of New Zealand v TSB Bank Ltd [2021] NZHC2241 at [2].18 Financial Markets Authority v ANZ Bank New Zealand Ltd [2021] NZHC 399, (2021) 16 TCLR28 at [37]; subsequently applied in Financial Markets Authority v AIA New Zealand Ltd [2022]NZHC 2444.(a) First, the court determines the maximum penalty under ss 38(2) and490 of the Act.(b) Next, the court sets a starting point having regard to the relevant factorsin s 492.(c) Last, the court adjusts the starting point by applying an uplift ordiscount on the basis of circumstances personal to the defendant.[50] The parties are agreed that this approach is an appropriate one.Maximum penalty[51] The FMA submits the "consideration for the relevant transaction" referred toin s 38 and the "consideration for the transaction that constituted the contravention"in s 490 is the total premiums charged on the affected polices over the period 1 April2014 to 21 November 2019. On that basis the amount is in excess of $100 million.[52] Cigna submits the consideration for the transaction is arguably the incrementalincrease in annual premiums on account of indexation. Cigna has assessed theconsideration on this basis as approximately $21 million.[53] I consider it is artificial to view the relevant transaction or the transaction thatconstituted the contravention as the indexation component of the policy. Thetransaction was the offer to customers to renew their policy on terms that included theindexation rate that Cigna had advised it was applying (subject to a customercontacting Cigna to advise that they did not want to accept that indexation). Cignamade false and misleading representations in that transaction in the offer set out in theannual notification letters and in charging premiums that included the indexationcover.[54] I therefore agree that the maximum penalty, if based on the consideration forthe relevant transaction/the transaction that constituted the contravention, is at least$100 million. This sum is obviously higher than $5 million ([44(c)] above). It is alsohigher than three times the net gain ([44(b)] above) – the net gain is $4,556,000 (beingthe additional premiums charged of $13,522,689.54, less $6,051,000 in additionalcover paid out and $1,765,000 in additional commissions paid and $1,150,000 inadditional premium reserves) and three times that net gain is $13,688,000. Themaximum penalty is therefore $100 million.Starting point[55] The agreed starting point recommended to the Court is $5,500,000. Thisstarting point has been reached with reference to the relevant factors in s 492 and acomparison with other cases.[56] As to the relevant factors:(a) Increasing premiums (and correspondingly increasing cover) throughfalse and misleading representations is at odds with the Act's purposes,particularly the purposes of promoting the informed participation ofconsumers in financial markets and providing accurate information toassist customers' decisions.19 Customers are entitled to expect that theirinsurance provider will be accurate in its communications and approachto the renewal of their policies.(b) The conduct occurred over a significant time frame (five years afters 22 of the Act came into force)20 and affected a large number ofpolicies (52,363 policies). It arose from periodic decisions made bysenior management.(c) Cigna's net gain is presently $4,556,000 but will continue to reduceover time as future claims are paid out. To achieve deterrence it isgenerally appropriate for the starting point to be substantially higherthan the net gain.21 While customers obtained increased cover fromCigna's conduct, it is not for Cigna to decide this for customers withoutbeing clear and transparent about the basis for the increase. Further,19 Financial Markets Conduct Act, ss 3(a) and 4(a).20 Section 22 came into force on 1 April 2014.21 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 18, at [55].while the increase in premiums paid was at the low end for some(median amount of $69 over six years), for others it was moresignificant (one customer paid a total additional premium of $33,370.29over the six-year period).(d) Cigna's conduct was not the result of a systems error.22 It was the resultof decisions made by senior management. External advice wasperiodically sought and generally followed but it did not lead to areview of the many policy wordings in place, nor a review of itsindexation rates each year to maintain relativity with CPI, nor toamending the policy wording to avoid the issue altogether. The FMAacknowledges, however, that the contravention was unintentional.(e) Cigna's relationship with its customers, as provider of insurance, is oneof special trust pursuant to which customers are entitled to expect clearand transparent communications from Cigna.[57] I have not included Cigna's comprehensive approach to remediation and thatit is a first time contravener of the Act in the starting point. As they are factors thatare personal to Cigna, they are relevant to the third stage ([49(c)] above), rather thanthe starting point.[58] In setting a starting point, general and individual deterrence is important.23Relevant to this, is that although Cigna obtained and generally followed externaladvice, it did not give sufficient consideration to its approach and the changes thatwere necessary. It is also relevant that Cigna is a large company with the resources topay a pecuniary penalty. As already mentioned, a starting point should also besignificantly above the net gain to meet deterrent aims.22 Compare with Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 18, at [11] and[59]; and Financial Markets Authority v AIA New Zealand Ltd, above n 18, at [14] and [83].23 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 18, at [45]; and FinancialMarkets Authority v AIA New Zealand Ltd, above n 18, at [87]. See also the Financial MarketsConduct Bill 2011 (342-1) (explanatory note) at 40.[59] As to a comparison with other cases, the two other cases involvingcontraventions under Part 2 of the Act are quite different. In ANZ Bank New ZealandLtd, the Court accepted as appropriate a starting point of $400,000.24 Although theconduct extended over a similar period and involved a large company, the extent ofthe conduct and its impact was much less than here as it involved about 307 policiesand consideration of $200,000. In Financial Markets Authority v AIA New ZealandLtd, the Court adopted a starting point of $1,000,000. Again, the extent and impact ofthe conduct was much less – affecting 383 customers who were overcharged about$413,5000 or, in respect of seven of them, underpaid between $19,000 and $46,000.In both cases the maximum penalty was $5,000,000 (although an argument was madein AIA New Zealand Ltd that the maximum penalty was $15,000,000 because therewere three breaches25) as the consideration and three times the net gain from thecontravening transactions were less than this. Moreover, the cases involvedinadvertent or process and system errors that were difficult to detect.26[60] A starting point here that is more than ten times that in ANZ Bank New ZealandLtd and more than four times that in AIA New Zealand Ltd cannot be said to be toohigh given these differences. Relative to the maximum penalty, and more importantlyfrom a deterrence perspective relative to the net gain, it might be said to be at the lowerend of the available range. However, that is appropriate given that Cigna soughtexternal legal advice throughout and generally followed that advice and that policyholders received the benefit of additional cover.27[61] The FMA's thorough submissions also discuss comparisons with penaltiesunder other legislation and in Australia. It is not necessary to discuss these cases. I24 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 18, at [85].25 The Judge did not determine this because, taking into account the principle of totality, it wouldnot be determinative of the penalty. Financial Markets Authority v AIA New Zealand Ltd, aboven 18, at [59].26 At [100(a)]; and Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 18, at [11]and [59].27 I agree with Cigna's characterisation of the conduct as involving "significant contraventions, butin circumstances which suggested that a defendant had made at least some attempt to comply withtheir obligations" which comes from case law under the Anti-Money Laundering and CounteringFinancing of Terrorism Act 2009. However, I consider it is not appropriate to apply the percentageof the maximum penalty that is discussed in those cases. The maximum penalty here, based onthe consideration received from the transaction, is significantly disproportionate to the net gain.can, however, say that nothing in these cases indicates that the agreed starting pointhere is out of range.[62] I am satisfied that the agreed starting point is within the available range havingregard to all relevant factors.Personal aggravating factors[63] There are no personal aggravating factors.Personal mitigating factors[64] The FMA accepts that a substantial discount is available to Cigna because itself-reported, fully cooperated throughout the investigation (including by providingits legal advice obtained during the relevant period), accepted it contravened the Actat the earliest possible stage, agreed to settle the proceeding on terms acceptable to theFMA, adopted process improvements, undertook a substantial remediationprogramme and kept the FMA regularly informed about that programme.[65] The FMA submits that the maximum discount in the circumstances is 30 percent. It says this is consistent with the discount in AIA New Zealand Ltd where AIA'sself-report and cooperation was not materially distinguishable from that of Cigna.28AIA also made changes to prevent further contraventions and remediated all affectedcustomers. The discount in that case was broken down into five per cent for self-reporting, five per cent for cooperation and 20 per cent for early admission.29[66] The FMA also submits a 30 per cent discount is consistent with ANZ BankNew Zealand Ltd for its cooperation and early admissions.30 It also submits it isconsistent with discounts in Commerce Act 1986 cases where discounts of 25 to 30 percent have been afforded to companies that cooperated with the CommerceCommission and made reasonably early admissions.3128 Financial Markets Authority v AIA New Zealand Ltd, above n 18, at [111]–[112].29 At [111].30 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 18, at [87].31 The FMA cites Commerce Commission v Objective Corporation Ltd [2022] NZHC 1864 at [20]–[21]; Commerce Commission v First Gas Ltd, above n 17, at [50]; and Commerce Commission vGEA Milfos International Ltd [2019] NZHC 1426 at [29]–[34].[67] The FMA says that any larger discount should be reserved for cases where adefendant provides a significantly enhanced degree of cooperation.32 It submits thatCigna provided the level of cooperation to be expected of a responsible company. Itsubmits that, while this is important and is to be encouraged, a discount above 30 percent absent special features (for example, providing evidence and assistance in theprosecution of others) risks reducing the penalty to a level where it does not providesufficient deterrence.[68] Cigna submits that its personal mitigating factors warrant a greater discountthan in ANZ Bank New Zealand Ltd. Specifically, ANZ did not claim credit for anabsence of regulatory contraventions and its self-report was made late. Cigna saysthat 30 per cent is not the cap for discounts absent special circumstances. It refers toother regulatory cases with similar features where discounts of 35 to 40 per cent havebeen allowed.33[69] I consider that a discount in the range of at least 30 per cent but less than 40 percent was available. I agree that this case is distinguishable from ANZ BankNew Zealand Ltd for the two reasons Cigna identifies. A prompt self-report followingan internal investigation after the Conduct and Culture Review compares with themore than one-year delay in ANZ's self-report. Cigna's prompt self-report, althoughto be expected of a responsible organisation, is still worthy of recognition toappropriately incentivise responsible behaviour. A discount of not less than five percent for this factor is warranted. I regard Cigna's full cooperation with theinvestigation (including remediating the contravention), acceptance of responsibilityat the earliest opportunity and cooperation in settling the proceeding as warranting adiscount of not less than 25 per cent. I consider a 30 per cent discount is at the bottomend of the available range for these factors and a little more would not be out of range.32 The FMA contrasts Commerce Commission v Qantas Airways Ltd HC Auckland CIV-2008-404-8366, 11 May 2011 at [51]–[62]; Commerce Commission v British Airways HC Auckland CIV-2008-404-8347, 5 April 2011 at [35]–[43]; Commerce Commission v Japan Airlines HC AucklandCIV-2008-404-8348, 29 June 2012 at [59]–[68]; and Commerce Commission v Cathay Pacific[2013] NZHC 843 at [56]–[62].33 Commerce Commission v Aurora Energy Limited, above n 17, at [37]; Commerce Commission vVector [2019] NZHC 540; Commerce Commission v Carter Holt Harvey, above n 17, at [53]–[54]; and Financial Markets Authority v Henry [2014] NZHC 1853 at [54]–[56].[70] Some regulatory cases have allowed a discount where the defendant hascontravened the regulatory regime for the first time.34 It is a relevant factor unders 492 so should be considered. Here, however, this factor is somewhat tempered bythe fact that the conduct at issue began from the inception of the Act and continuedover a period of years. Nevertheless, a small discount for this factor could be allowed.[71] I agree with the FMA that, absent special or unusual features, discounts shouldnot be so large as to remove the deterrence objective of pecuniary penalties under theAct's regime. I also note that this is not a case where I am concerned that the agreedstarting point is so high that a too low discount could put the end penalty out of range.However, standing back, it can be asked what more could Cigna have done once itrealised its contravention. Its response to that contravention is to be encouraged evenif it was what the FMA is entitled to expect from responsible organisations.[72] Overall, I consider a discount of 35 per cent for all the mitigating factors isappropriate. From a starting point of $5,500,000 that means an end penalty of$3,575,000. I consider that penalty appropriately deters non-compliance while alsoencouraging voluntary and fulsome corrective action and cooperation.Result[73] Accordingly:(a) I make a declaration that Cigna contravened s 22(d),(f) and (h) of theAct.(b) I impose a penalty of $3,575,000 on Cigna for that contravention.(c) I make an order under s 493 of the Act that the penalty is to be appliedfirst to the FMA's costs in bringing the proceeding.Mallon J34 See for example Financial Markets Authority v Henry above n 33, at [54]; and Takeovers Panel vNew Zealand Image Group Ltd [2022] NZHC 1504 at [68] and [77].