Enforcement

FMG's yearly cover increases were wrong for 11 years, and 480 people found out at claim time

Source: FMA, FMG admits to making misleading statements and makes payment of $2.1 million

The error sat on 54,642 policies and was worth about $6 a year, far too small for any customer to spot on a renewal notice. A second FMG error charged 3,904 contents customers extra to name belongings that were already covered, an average of $496 each. Both ran for more than a decade before FMG's own systems caught them.

By Henry Smith · Insurers · 2026-02-09

What this means for you Two pricing errors at FMG ran undetected for up to 12 years and affected 58,546 customers. For 480 of them the mistake only showed up at claim time, when the cover amount on their policy turned out to be wrong and the claim had to be topped up. The amounts were far too small to spot on a renewal notice, so catching this was only ever going to happen inside the insurer.

Written by Henry Smith · Reviewed by Smiths Insurance & KiwiSaver, licensed Financial Advice Provider (FSP712931)

The number on your policy that says how much you are covered for is meant to be the number your insurer pays out on. For 480 FMG customers it was not. They made a claim, the cover amount on the policy turned out to be wrong, and the claim had to be topped up after the fact.

Behind those 480 claims is a mistake FMG repeated every year for 11 years, on 54,642 policies. A second error ran longer still. From 2012 to 2024, 3,904 contents customers paid extra to name particular belongings on their policy, and the naming bought them nothing, because the ordinary contents cover already paid out on those items. Those customers are getting back an average of $496 each (FMA, 9 February 2026).

What does this mean for me?

Neither error was findable from the outside. Spread across the ten years the regulator counted, the naming error works out at roughly $50 a customer a year and the yearly increase error at about $6 (QuoteHub arithmetic on the same FMA figures). Six dollars is one flat white. Fifty dollars disappears inside a premium that moves more than that in an ordinary year. Nobody reads a renewal notice closely enough to catch either one, and FMG did not catch them for more than a decade.

That points at two checks worth making on any policy whose cover amount rises automatically each year. First, what does the wording actually promise: a flat percentage, a rise tied to inflation, or no automatic increase at all? Second, does this year's cover amount match that promise? Those 480 topped-up claims are what happens when the answer is no and nobody looks until the day of the claim.

What did FMG get wrong?

On 9 February 2026 the Financial Markets Authority, the government regulator for financial firms, announced that FMG Insurance Limited and Farmers' Mutual Group, trading together as FMG, had admitted misleading their customers. That breaks the fair dealing rule in the Financial Markets Conduct Act, which stops financial firms telling customers things that are not true. FMG reported the problem itself and agreed to pay $2.1 million instead of a court-imposed fine, under an enforceable undertaking, a binding promise the regulator can accept rather than take a company to court (FMA).

The first error was the named items, running from 2012 to 2024. The second was indexation, the yearly increase most policies apply to your cover amount so it keeps pace with rising prices. Between 2013 and 2024 FMG applied a flat percentage every year. Some of those policies promised an increase tied to inflation instead. Others promised no automatic increase at all. That is how a cover amount ends up different from the one the wording sold.

Here is what each error cost. The refunds include GST and use of money interest, which compensates customers for the years FMG held money that was not its own.

Measure	Naming items already covered	Yearly increases that broke the wording
Years it ran	2012 to 2024	2013 to 2024
Customers counted	3,904	54,642
Due a refund	3,904	around 26,000
Paid back	about $1,936,000	about $3,380,000
Average per customer counted	$496	$62
Claims topped up	5, about $6,000	480

Counts and totals from the same FMA release, covering 1 April 2014 to 2024. The averages are our division of those figures. The two groups add to 58,546 customers if nobody appears in both, which the FMA does not say.

Add up everything going back to customers, including the topped-up claims, and the total is about $5,322,000, roughly two and a half times the $2.1 million FMG paid the regulator. That sum is ours, from the same release.

Who actually pays the $2.1 million?

There is a twist the release does not mention. FMG is a mutual, "100% owned by our rural members" in its own words (FMG homepage, January 2025 archive snapshot). A mutual has no outside shareholders to absorb a hit like this. The $2.1 million comes out of the members' shared funds, and the members are the customers. The overcharged group is helping to pay for its own compensation.

How does this compare with other insurers?

IAG is the nearest case. In October 2025 the High Court fined it $19.5 million after about 269,000 customers were overcharged roughly $35 million, across 41 separate problems the insurer reported itself between September 2021 and December 2024 (FMA, 6 October 2025). The regulator called that conduct worse than any other fair dealing case it had brought, and IAG was taken to court while FMG settled with a promise.

The comparison that matters to a customer is not the size of the penalty. It is the clock. IAG's problems were found and reported inside a three-year window. FMG's two ran for 11 and 12 years.

Why does the count start in 2014?

The first error began in 2012 and the second in 2013, yet both customer counts in the same FMA release start on 1 April 2014. That is the day section 22 of the Financial Markets Conduct Act, the fair dealing rule FMG broke, came into force (Financial Markets Conduct Act 2013, commencement notes). Up to two years of overcharging therefore sits outside the rule it was punished under, and the release does not say whether that earlier money was ever repaid.

What should I check on my own policy?

Two lessons travel well beyond contents insurance.

Named items: paying extra to list something only helps if it buys cover the basic policy does not already give you. Before paying to name an item, ask the insurer to state in writing what the naming adds.

Automatic increases: they cut both ways. FMG's flat rate overcharged some customers and left others with less cover than the wording promised, which is why claims had to be topped up. Life insurance policies commonly rise each year in the same way, so the same check belongs there. Compare this year's cover amount with last year's, then read what the wording actually promises. A claims readiness review is the place to do that.

Neither check is really about spotting a few dollars a year. At the amounts involved, detection was never going to come from the customer. It came from inside FMG, long after the fact. The realistic protection is re-testing the whole policy against the market every so often, rather than squinting at renewal notices. Comparing insurers forces the questions that expose bad pricing: what am I paying, for what cover, on what terms.

What could we not check?

The undertaking itself is published as a 10-page scanned PDF (FMA). We could not read it by machine, so every figure here comes from the FMA's media release. That release does not say when FMG reported itself, what triggered the discovery, or how the $2.1 million was set. FMG's website blocks automated access, so its ownership wording comes from a January 2025 Internet Archive copy of its homepage.

The $496 and $62 averages include GST and interest, so the premium overcharges behind them are smaller, and averages hide a spread the FMA has not published. The per-year figures divide by the full ten-year counted period, but individual customers were affected for different lengths of time. They show scale, not anyone's actual bill.

What this means for your cover

Financial strength, published benefit limits and who underwrites which brand, side by side. Compare New Zealand insurers

Sources

Every source below was read and checked on 21 August 2026.

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