Australia’s corporate regulator has launched civil penalty proceedings in the Federal Court against Insurance Australia Limited (IAL) following its failure to honour discount promises made to its customers.
ASIC alleges IAL, a wholly owned IAG subsidiary, engaged in misleading or deceptive conduct and made false or misleading representations to some NRMA Insurance customers by saying they were eligible for certain discounts on renewal of their home and motor insurance policies and then failing to apply those discounts.
According to ASIC, IAL increased the gross insurance premiums that would apply to those customers to ensure their net premiums, after the discounts, did not fall below a certain level. As a result, the full discounts were not passed on to customers.
ASIC alleges this practice impacted NRMA Insurance renewals between March 2014 and November 2019, affecting at least 596,000 customers via 705,000 separate insurance policies approximately 1,785,000 times. The affected customers did not receive promised discounts totalling around $60 million.
IAG acknowledged the proceedings, saying it “apologises for this failure, recognises the significance and that this was unacceptable, and is putting this right for its customers as soon as possible.”
The company said when it identified the issue as part of a proactive review in 2019, it self-reported to ASIC. IAG reviewed its pricing commitments and promises across its products and identified impacted customers to provide refunds.
“The customer refunds associated with these proceedings are covered by the customer refund provision that was established in FY20 and FY21, which also covers other products and pricing-related matters, but does not include any potential civil penalty outcome,” IAG said.
“Considerable progress has been made on the remediation programme with more than 80 per cent of affected NRMA Insurance customers having now been compensated in relation to this issue.
“Since late 2019, IAG has enhanced its systems and processes for the delivery of discounts, as part of its significantly improved risk culture and control environment.”
IAG said it is working closely with ASIC through the remediation programme.
ASIC Deputy Chair Sarah Court said ASIC is calling on general insurers, including IAL, to ensure customers get the full discounts they are promised.
“This follows industry-wide failures that have led to insurers repaying more than $400 million to over 2 million home, car and other insurance customers since 2018. All insurers should take urgent steps to ensure they can and do meet the pricing promises they make,” said Court.
“This may require insurers to update legacy IT systems and make improvements across compliance, governance and culture. Where there are failures, or empty promises about price discounts, ASIC will use the full range of regulatory tools available to protect consumers, including enforcement action,” she added.
Court also called on all general insurers to review their pricing systems and controls to prevent consumer harm as a matter of priority. She advised them to:
- Identify any differences between the prices (including discounts) they promised their customers (over at least the past five years) and what those customers were charged
- Comply with their breach reporting obligations
- Remediate any customers impacted, including refunding overpaid premiums
- Fix the systems, processes, controls, and governance practices that have led to promised discounts not being honoured.