Bupa is to pay out nearly £17 million in compensation to Australian members whose health insurance claims were deliberately blocked to prevent payouts.

The company, which is Australia’s second largest private health insurer with four million customers, has admitted to engaging in misleading or deceptive conduct.

It also admitted to making false or misleading representations by advising members they were not entitled to private health insurance benefits when they were and/or advising members they needed to upgrade to higher levels of medical insurance to ensure treatment.

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The Australian Competition and Consumer Commission ordered the compensation after finding that Bupa members were left to finance their own medical treatments and procedures and were left thousands of dollars out of pocket.

In other instances, members were out of pocket after being forced to upgrade to more expensive policies to ensure they were covered.

In addition it found some members were left at risk of deteriorating health or medical complications and in physical pain and distress when they couldn’t afford to fund their own treatment.

After the commission’s findings covering a period of five years, Bupa accepted a penalty of A$35 million (£16.8 million).

“Bupa’s conduct … caused harm to consumers, some of whom delayed, cancelled or went without treatment for which they were, at least partially, covered under their health insurance policies,” said Gina Cass-Gottlieb, chair of the commission.

Nick Stone, the Asia Pacific chief executive of Bupa, the UK private health insurer founded after the Second World War as British United Provident Association, said: “It should never have happened.”

Stone said the company was “deeply sorry for failing to get things right for our customers”. He blamed an automatic processing system when manual reviews were necessary and inaccurate or unclear instructions to staff and training and guidance shortfalls.

Australia is big business for Bupa, being part of a regional trading operation which also takes in Hong Kong and New Zealand and which last year accounted for nearly half of group profits. Bupa started operating in Australia in the early 2000s and expanded by acquisition.