AMP fined $24m for charging life insurance premiums to deceased members

Two AMP (ASX: AMP) subsidiaries have been hit with a total monetary penalty of $24 million after the Federal Court of Australia found the company’s insurance businesses charged fees to more than 2,000 customers after they passed away.

It comes as MLC Limited (MLC) has also been ordered to pay a $10 million penalty for failing to pay promised benefits to life insurance members, resulting from a lack of appropriate systems to administer its policies.

AMP Life was charged $18 million for its ‘unconscionable conduct’ in deducting premiums from the superannuation accounts of 1,139 members after the notification of those members’ deaths, while AMP Financial Planning will pay $6 million in fines for charging fees from 27 member accounts post mortem.

The Federal Court also found that premiums from super accounts were deducted after the deaths of 1,109 AMP Superannuation members and 30 NM Superannuation members. In total, AMP subsidiaries charged premiums from 2,305 deceased members.

When launching the case against AMP, the Australian Securities and Investments Commission (ASIC) claimed AMP companies received more than $500,000 in insurance premiums from the superannuation accounts of deceased customers, and alleged the firms received more than $100,000 in advice fees from deceased customer accounts.

In a statement, AMP acknowledged the Federal Court decision and noted it self-reported the issue to the regulator back in 2018.

“AMP took action to change its processes and policies to address these issues and remediated all impacted customer accounts,” AMP said.

“In total, AMP remediated 10,155 customer accounts a sum of approximately A$5.2 million for the period from 2011 to 2019, which included compensation for lost earnings. The remediation was completed in May 2020.”

AMP said the penalty was fully provisioned for in the company’s financial statements for the year ended 31 December 2022.

“AMP apologises to all beneficiaries of those affected by this matter. When we identified the issue in 2018, we reported it to the regulator and worked hard to remediate the estates of affected customers as promptly as possible,” AMP group general counsel David Cullen said.

“We have made strong progress in becoming a customer-focused and purpose-led organisation, and this historical matter is not reflective of the AMP we are today. We have made significant changes to our systems and processes in recent years designed to prevent this from recurring.

“We engaged constructively with ASIC throughout the legal process, and we acknowledge today’s judgment and the conclusion of the matter.”

ASIC deputy chair Sarah Court described AMP's legacy systems as "inadequate".

"The AMP companies had been notified that these customers had died, and despite this, continued to charge premiums and fees on their super accounts," Court said.

"Customers, and their beneficiaries, expect financial services providers to have the proper systems in place to ensure, once notified, deceased customers are no longer charged. These systems were inadequate, and customers were let down.

"‘This misconduct represents a fundamental breach of trust between a customer and their financial services provider."

In handing down her decision, Justice Hespe described the conduct as "very serious, wrongful behaviour", noting "the deceased members affected were vulnerable, obviously unable to monitor their accounts and were entirely reliant on the representatives of their estates".

"‘The beneficiaries of those estates involved individuals who may be expected to have been emotionally vulnerable and unlikely to be familiar with the terms of a policy not issued to them or on their behalf," Justice Hespe said.

"The lack of oversight and executive management awareness of the issue was part of the problem. The culture of the AMP Group assumed no systemic issues.

"It resulted in a failure to have a process in place that was capable of identifying, investigating and remediating systemic issues for many years. The failure reflects poorly on the Defendants."

The penalty comes after AMP was hit with a $14.5 million fine last year for charging $356,000 in unlawful super fees on corporate-sponsored superannuation accounts.

Shares in AMP are up 0.46 per cent to $1.08 per share.

MLC Life Insurance slogged with $10m fine

Alongside the news of AMP’s penalty, MLC has also been ordered to pay a $10 million fine for failing to pay rehabilitation benefits to 119 customers who had undertaken approved rehabilitation programs following injury and/or disability.

The case, which was also brought to the Federal Court by ASIC, resulted in the determination that MLC failed to have adequate processes to review and, if appropriate, promptly update certain policies.

Further, it was found that MLC failed to adequately train and monitor staff about communications to customers regarding the administration of their policy.

“Customers should be able to trust that their insurer will pay the benefits promised to them and keep them properly informed if there are changes to their policies,” ASIC deputy chair Sarah Court said.

“The failings recognised by the Court are the result of poor governance, poor controls and poor systems, such as legacy IT systems. MLC customers deserve to have their insurance policies administered properly.

“ASIC will continue to take action against insurers who aren’t acting in accordance with their duty of utmost good faith towards their customers.”

In addition to the $10 million penalty, MLC has provided approximately $11.8 million in remediation to approximately 1,000 impacted customers.