Insurer underpaid hundreds of NSW accident victims in 'mind blowing' error

NRMA Insurance has been forced to repay hundreds of people who were injured in motor vehicle accidents, after failing to correctly calculate some compulsory third party (CTP) benefits since 2019.

The original error was not detected by the insurer, nor was it noticed by NSW's State Insurance Regulatory Authority (SIRA), despite it having previously launched an audit of the company's practices.

Instead, the mistake was spotted by a lawyer who realised their client's weekly payments did not add up.

Initially, NRMA Insurance estimated about 700 people who had been injured in motor vehicle accidents had been underpaid, before revising the number down to 400.

However, the company told the ABC it had also identified a "further cohort" of people it believed were owed interest, after previously receiving lump sum payments.

Greens MP Abigail Boyd said NRMA Insurance, a trading name of Insurance Australia Limited, should have been capable of indexing payments correctly.

"It actually blows my mind," she said.

"I don't understand how this multi-billion dollar company doesn't have that automated system in place."

She said it was "particularly extraordinary" that NRMA had not discovered the issue itself.

"You have this massive power differential between these insurers and these injured people who are going through some of the worst times of their lives.

"[Yet] it's somehow expected that [the victims] are the ones, or their lawyers … that will pick up these errors."

A 'help company' apologises

Under the state's CTP scheme, people injured in motor vehicle accidents are entitled to income support payments if they are unable to work as a result.

It starts at 95 per cent of their pre-accident weekly earnings, before dropping to a maximum of 85 per cent from 14 weeks onwards, depending on their capacity to work.

The payments, made by CTP insurers like NRMA Insurance, are supposed to be adjusted twice a year, in line with average weekly earnings.

However NRMA Insurance, which markets itself as "a help company", acknowledged it had incorrectly applied this principle, costing the average affected claimant $940.

"We became aware in late April this year, through a customer's legal representative, that the statutory indexation may not have been correctly applied to weekly benefit payments for customers who continued receiving payments more than 78 weeks after their accident," a spokesperson said.

"Our investigation confirmed an error in the application of indexation in our system, which has been corrected. We apologised to the customer, paid the amount outstanding (and interest) and notified the regulator."

NRMA Insurance, which is a separate entity to the NRMA, said it had recently completed the process of repaying customers, along with the interest they were owed.

"We sincerely apologised to all affected customers," the spokesperson said.

Mistakes that keep happening

This is not the first time NRMA Insurance has failed to properly pay the required weekly benefits to people who have been injured in motor vehicle accidents.

In February 2023, SIRA issued a letter of censure to the company, after finding it had contravened NSW legislation, and its licence conditions by underpaying more than 2,000 customers.

NRMA Insurance repaid more than $735,000 to those affected, but it wasn't fined.

In March the same year, another censure letter was issued over the late processing of weekly benefits. No fine was issued.

And in June 2023, SIRA sent another censure letter to NRMA Insurance over delays in commencing weekly payments. No financial penalty was imposed.

Ms Boyd said SIRA's enforcement actions to date had given NRMA Insurance little incentive to raise its standards.

"When you stand to save millions of dollars by not doing what's required from you, and if you get caught, the only consequence is a censure letter and not even a public shaming," she said.

"Of course companies aren't going to take [SIRA] seriously."

In 2024, SIRA did issue a $10,000 penalty after finding NRMA Insurance failed to disclose and properly apply a demerit point loading on CTP policies, but it fell well short of the $110,000 maximum fine.

A spokesperson for SIRA said the regulator had been investigating the latest NRMA Insurance underpayment issue since May.

"SIRA will determine the appropriate regulatory response once its investigation is complete, in line with its statutory powers and regulatory framework," they said.

"SIRA has required NRMA to remediate payments to affected claimants, and NRMA has taken this action."