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The nation’s corporate watchdog has launched civil proceedings against two IAG (ASX: IAG) subsidiaries, alleging the companies misled customers about the loyalty discounts available for certain types of home insurance.
The Australian Securities & Investments Commission (ASIC) has filed a lawsuit in Federal Court against Insurance Australia Ltd (IAL) and Insurance Manufacturers of Australia (IMA), alleging loyal customers may have had their premiums increased before discounts were applied.
Between January 2017 to December 2022, IAL and IMA renewed more than one million home insurance policies. The policies involved are the SGIO, SGIC and RAVC brands.
When calculating the renewal of a customer’s premium, IAL and IMA used an algorithm to determine a customer’s likelihood to renew at different premium levels. The algorithm allocated a smaller price increase to policies that were less likely to renew and a larger price increase to policies that customers were more likely to renew.
ASIC claims this either did or may have resulted in some loyal customers receiving a larger relative price increase to their policy before the discounts were applied.
“The way they operated their pricing algorithm meant that some longer-term or more loyal customers were allocated, or may have been allocated, higher premiums before the promised discounts were applied,” ASIC deputy chair Sarah Court said.
“There is a risk that loyal customers, having been promised a discount, were persuaded to stay with these companies, and in doing so lost their opportunity to shop around for a better price."
ASIC also alleges that between 25 August 2017 and 24 August 2023, IAL made statements about its SGIO and SGIC branded home insurance policies on websites and in other documents that its customers would receive a ‘Loyalty Discount’.
The watchdog also alleges IMA made statements about RACV branded home insurance policies on websites and other documents that its customers would receive a ‘Years of Membership Discount’ and/or a ‘Multi-Policy Discount’.
ASIC claims that IAG’s pricing algorithm operated inconsistently with their discount promises and therefore IAG failed to operate efficiently, honestly and fairly.
“Where insurers make discount promises to renewing members, they need to have robust systems and controls in place, especially where complex pricing systems and algorithms are used, so they can be sure they are delivering on these promises,” Court said.
“Insurers should not promise discounts unless they are confident that they can and will deliver them in full.
“The failure by insurers to deliver on pricing promises is a key priority for ASIC and we will continue to take enforcement action to hold insurers to account.”
In a statement, IAL and IMA maintained they have delivered on loyalty promises made to customers.
“IMA and IAL do not agree that they have misled customers about the extent of the discounts they would receive, and intend to defend the proceedings,” IAG said.
ASIC’s proceedings against IAG’s subsidiaries come two months after IAL was penalised $40 million for pricing discount failures, the largest penalty ever handed down against an insurer for breaches of financial services laws.
In June, the corporate watchdog also called on all general insurers to ditch unnecessary pricing complexity after a report revealed they will be forced to repay $815 million to almost 6 million consumers.
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