Australian Unity will pay at least $620,000 in compensation after the consumer watchdog found it potentially misled customers over the benefits of a company dental plan.
The Australian Competition and Consumer Commission on Friday said the mutual may have misled consumers by suggesting the benefits were fixed for the year.
Australian Unity then made changes to the scheme.
ACCC commissioner Sarah Court said insurers should not rely on fine print to reserve the right to change policies they represented as immutable.
"Insurers must deliver on the claims they make to members," Ms Court said.
"They cannot move the goal posts by selling members a policy with fixed benefits and then change the rules midway through the life of the policy to reduce those benefits."
The ACCC said Australian Unity will pay a minimum of $620,000 in compensation, including reimbursement for out-of-pocket dental costs incurred in 2015.
At the start of that year, the insurer's Comprehensive Extras policy for couples and families included a single, fixed overall limit for dental benefits of between $1,600 and $2,400 per calendar year, with policy holders able to split those limits however they wanted.
But in August, Australian Unity told members it was limiting claims for each individual member to half the annual total.
The change was made the following month.
The ACCC said Australian Unity had co-operated with its investigation, admitting it was likely to have made false or misleading representations and breached Australian Consumer Law.
Australian Unity has agreed not to make any similar policy changes for three years and to improve information provided to consumers.