The Australian Securities & Investments Commission (ASIC) has commenced civil penalty proceedings in the Federal Court alleging that IAG subsidiaries Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia (IMA) misled customers about the loyalty discounts available for certain types of home insurance.
According to ASIC, between January 2017 to December 2022, IAL and IMA renewed more than 1 million home insurance policies involving the SGIO, SGIC, and RACV brands. The commission alleges loyalty discounts encouraging customers to renew their home insurance policies were misleading as loyal customers may have had their premiums increased before the discounts were applied.
“We allege that IAG subsidiaries IAL and IMA misled their customers about the extent of the discounts they would receive,” said Sarah Court, ASIC Deputy Chair. “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.
“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 SGIO and SGIC customers would receive a “Loyalty Discount”
- IMA made statements about RACV branded home insurance policies on websites and other documents that RACV customers would receive a “Years of Membership Discount” and / or a “Multi-Policy Discount”
- 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,” said Court.
“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.”
ASIC is seeking declarations of contravention, pecuniary penalties, and adverse publicity orders against IAL and IMA from the Federal Court.
The date for the first case management hearing is yet to be scheduled.
In June 2023, in a separate matter, IAL was penalised $40 million for pricing discount failures, the largest penalty ever handed down against an insurer for breaches of financial services laws.
ASIC has also commenced court action against RACQ for allegedly misleading statements regarding price discounts on certain optional insurance covers.
Additionally, general insurers are remediating more than $815 million to more than 5.6 million consumers for pricing failures reported to ASIC since 1 January 2018.