IAG slapped with class action amid claims algorithms targeted loyal customers

IAG slapped with class action amid claims algorithms targeted loyal customers

Photo: SES, via Facebook

Insurance Australia Group (ASX: IAG) has been slapped with a class action in the wake of a civil case filed by the corporate watchdog last year that alleges the company misled customers about loyalty discounts for home insurance products.

Law firm Slater and Gordon has further alleged that the insurer used algorithms to identify loyal customers who would be unlikely to switch providers in the event of being charged higher premiums.

Slater and Gordon says the class action has been lodged on behalf of millions of RACV, SGIO and SGIC customers affected by loyalty discounts that were promoted between 2018 and 2024 to entice them to renew their home and contents insurance.

The insurance giant this morning confirmed that it has been served a statement of claim in the Supreme Court of Victoria.

The class action is based on allegations brought by the Australian Securities and Investments Commission (ASIC) to the Federal Court in August last year against IAG’s subsidiaries Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia (IMA).

ASIC is claiming that loyal customers may have had their premiums increased before the discounts were applied.

Slater and Gordon has accused IAG of “misleading, deceptive and unconscionable conduct by informing customers they were receiving loyalty discounts at the time of renewal, when they may have been charged an artificially higher base premium”.

It is alleged that policyholders were informed they were receiving the discounts based on the number of years they had been with the insurer and the number of policies they had with the same brand.

Slater and Gordon's class actions group leader Ben Hardwick alleges that a pricing algorithm was used by the insurers to identify the likelihood of policyholders staying with the same brand if their home and contents insurance premiums increased.

“We’re alleging that millions of Australians paid premiums year-on-year to these IAG insurers on the promise that they were getting a discount,” says Hardwick.

“But in reality, because of this pricing algorithm they were using, new customers were typically paying less for their policies than loyal customers who had been with them for more than 20 years.

“The higher the computer program identified a customer’s perceived price elasticity, the lower the annual premium increases the customer would receive, so loyal customers who were assessed as having low price elasticity and were unlikely to leave, faced steeper increases to their premiums.”

Hardwick says it is alleged that these customers were “denied all relevant information they should have had access to before they renewed their home and contents policies” in order to make an informed choice.

“The reality is that they are likely to have received cheaper insurance from these brands had their loyalty not been a factor in their renewal calculations at all,” he says.

The class action is alleging this amounts to contravention of financial services laws and that IAG knew or ought to have known that their conduct was not in their customers’ financial interests.

“Home and contents insurance is among the biggest household expenses that everyday Australians face each year, so to learn that these insurers have allegedly been taking advantage of loyal customers in such a way, we say, is unlawful,” says Hardwick.

“This class action is seeking compensation for affected customers for the losses and damage they have suffered as a result of IAG’s conduct.”

The class action’s lead plaintiff Angela Williams, a 56-year-old medical practice manager who held home and contents insurance with RACV for more than 20 years, says she was “shocked” to learn about the allegations.

“I thought I was getting a good deal,” says Williams.

“If I had known that RACV was actually charging me a higher base premium because of a pricing algorithm, I would have switched right away.

“I thought they were trustworthy, so it’s really disappointing to hear that they’ve basically been taking advantage of loyal customers in order to make a quick buck”.

SGIO customer Debra Dawson, the other lead plaintiff, says she was “perturbed” by the alleged conduct. The 64-year-old has had contents insurance with SGIO for 16 years and says she remained with the insurer due to a loyalty discount.

“I thought that the discount was an advantage I couldn’t get with another insurer,” says Dawson. “That’s why I never sought to renew my policy with another insurer."

In a statement to the ASX this morning, IAG reaffirmed that it was defending the proceedings brought by ASIC.

“IAL and IMA maintain they have delivered on loyalty promises made to customers and do not agree that they have misled customers about the extent of the discounts they would receive,” says the company. “IAL and IMA intend to defend the proceedings commenced by Slater and Gordon.”

The civil action brought by ASIC is currently progressing through the court, with the matter listed for a case management hearing on 3 October 2024.

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