)
Insurance Australia Group (ASX: IAG) plans to fight a new class action brought by law firm Slater and Gordon on behalf of millions of NRMA policyholders that it alleges were hit with a “loyalty tax” when it came to renewing their home and contents insurances.
The law firm alleges that IAG subsidiary Insurance Australia Limited had engaged in “misleading and deceptive conduct” as well as “unconscionable conduct” by informing customers they were receiving loyalty discounts at the time of policy renewal, but not informing them that those discounts could be offset by a “loyalty tax” which IAL had built into the customer’s base premium.
The class action has been launched more than a year after the Australian Securities and Investments Commission began civil penalty proceedings in the Federal Court alleging Insurance Australia Limited (IAL) and another IAG subsidiary Insurance Manufacturers of Australia (IMA) misled customers about the loyalty discounts available for certain types of home insurance.
IAG has confirmed today that it has been served with a statement of claim lodged in the Supreme Court of Victoria, noting that it plans to defend the proceedings.
“This class action follows the class action proceedings commenced by the same law firm in May 2024, which IAL and IMA are also defending, and relates to loyalty offers for NRMA Insurance home, contents and home and contents insurance policies,” the company says.
“IAL and IMA maintain they have delivered on loyalty offers made to customers and do not agree that they have misled customers about the extent of the discounts they would receive. is facing a class action.”
The earlier class action related to policies issued to millions of RACV, SGIO and SGIC customers.
Slater and Gordon says the latest class action relates to part of the “get your insurance back” campaign by NRMA which the law firm’s group leader of class actions, Ben Hardwick, says cost loyal customers dearly.
“We’re alleging that millions of Australians paid premiums year-on-year for NRMA home insurance on the promise that they were getting a discount,” says Hardwick.
“But in reality, because of this pricing algorithm, long-term customers were unknowingly paying extra in the form of higher base premiums.
“Customers are sick of being taken advantage of by big businesses and insurers, so through this group proceedings, consumers are demanding to be compensated for the loss and damages we say they have suffered as a result of IAL’s conduct.”
Slater and Gordon alleges that the insurers used a pricing algorithm to identify which consumers were least likely to switch to a different insurer in response to price increases in their premiums. The algorithm then increased the base premium of those consumers who they determined were least likely to switch.
“This class action alleges that these customers were denied all relevant information they should have had access to before they renewed their home and contents policies so they could have made an informed choice about whether to shop around for a better deal, or at the very least ask for a better price,” says Hardwick.
“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.
“We consider that this conduct may amount to misleading and deceptive conduct and unconscionable conduct, in breach of the ASIC Act.”
The law firm alleges that the higher the computer program identified a customer’s perceived price elasticity, the lower the annual premium increases the customer would receive. This meant loyal customers, who were assessed as having low price elasticity and were unlikely to leave, faced steeper increases to their premiums.
Among the customers affected was one that Slater and Gordon says experienced a 58 per cent increase in his premium in FY24 alone after a big increase the previous year.
“I thought, that can’t be right,” says the customer, who the law firm has identified as John S.
“So, I went with NRMA online to check under a different name, everything else was the same except my name, and the same policy was up to $4,000 cheaper.
“I checked with other companies as well and none of them came close to the expensive quote I got from NRMA.”
Hardwick notes that home and contents insurance is among the biggest household expenses that Australians face.
“So, to learn that these insurers have allegedly been taking advantage of loyal customers in such a way, we say, is unlawful,” he says.
“This class action is seeking compensation for affected customers for the losses and damage they have suffered as a result of IAL’s conduct.
“These legal proceedings should put all insurance companies on notice that this kind of misleading, deceptive and unconscionable conduct will be acted upon by consumers.”
)
