RACQ Insurance fined $10m for failing customers on discount promises

The insurance arm of the member-owned Royal Automobile Club of Queensland (RACQ) has been fined $10 million after the Federal Court found it had sent misleading product disclosure statements (PDSs) to customers on at least five million occasions between March 2017 and March 2022.

The court found that approximately 458,746 customers missed out on more than $86 million in discounts they should have received from RACQ, which is a top 10 provider in Australia in terms of gross premiums written for motor vehicle and home insurance.

"Consumers need to be able to rely on the pricing promises made to them by insurers, and insurers need to make sure that they pass on those promises in full," said Sarah Court, deputy chair of the Australian Securities and Investments Commission (ASIC).

"ASIC identified pricing promises in insurance as an enforcement priority this year, and will continue to monitor marketing and pricing practices in the industry, and use the full range of regulatory tools available to protect consumers from general insurers failing to honour promised discounts."

Other recent examples of the watchdog's investigations in this space include civil proceedings against two IAG (ASX: IAG) subsidiaries over loyalty discounts, and a target market determination issue for major pet insurers which has since been resolved.

In the case of RACQ, its PDSs Motor, Home, Caravan & Trailer and Unique Vehicle insurance policies included statements that certain discounts would be applied to customers’ insurance premiums.

The court found these statements were potentially misleading because the discounts were only applied by RACQ to the base insurance premium, but not to additional premiums paid for certain optional extras.

"ASIC brought this case in February 2023. We are pleased it has reached a conclusion within a year, with a significant penalty handed down and a clear message to the insurance industry that failures in pricing practices will not be tolerated," Court said.

The affected optional benefits were Excess Free Windscreen, Hire Car, No Claim Discount Protection, Increased Caravan Contents, Pet, Mobile Phone, Small Business Contents and Items Away From Home, as well as the additional premium charged by RACQ for household insurance purchased for unoccupied properties. 

RACQ admitted to the contraventions and the parties jointly submitted that the penalty sought by ASIC was appropriate.

RACQ was also ordered to pay ASIC’s costs of the proceedings.