Norwich Union pays £7m over computer error

Norwich Union, the UK arm of the insurance giant Aviva, revealed yesterday it has shortchanged 100,000 customers to the tune of £7m through an error in its computer systems.

A review of the system used to price the value of policies in the company's unit-linked, with-profits fund revealed 100,000 customers have had their policies undervalued. Unit-linked policies are a modern version of traditional with-profits investing, where returns are smoothed over a period of time. In unit-linked policies, investors buy individual "units" in the fund, which are directly linked to the stock market and are given a daily price. The system had been under-allocating funds to unit-linked pension, saving and investment policies since March 1999.

Norwich Union is writing to the customers to tell them of the problem and how they will be refunded. Customers whose policies have already matured will receive a cheque making up the difference to the total they should have received. Customers with policies still in force will automatically have their funds boosted to the correct number of units. Norwich Union estimates the average value of the additional units its customers are entitled to is £70 per policy, making its bill for the error some £7m.

The company has more than 3 million unit-linked policyholders, but is confident yesterday's announcement represents the full extent of the problem and no more policyholders will be affected. The redress will be paid for out of shareholder funds.

The errors were discovered as part of a drive by the company to bring its with-profits systems in line with how it prices units in unit trusts and open-ended investment companies. It said the upgrade was now complete and will ensure more accurate pricing of policies in the future. "We are introducing much stricter controls on how we price our units," a spokeswoman said.