The Australian Securities & Investment Commission (ASIC) says that general insurers have overcharged customers by $815 million in what ASIC Deputy Chair Karen Chester described as a “systemic failure by insurers to deliver on their pricing promises”.
The overcharging was revealed in an ASIC report revealing that ongoing pricing failures affected more than 5.6 million consumers across 6.5 million policies, including motor insurance products.
“ASIC’s report reveals three main causes for the systemic pricing failures,” said Chester. “First, unnecessary complexity in pricing promises and pricing practices, accounting for the lion’s share (at least $379 million) of the remediation. Second, persistent underinvestment in systems, controls, and data. Third and perhaps the most disappointing, insurers’ inaction despite being on notice for years about these pricing risks.”
Following a significant increase in pricing-related breach reports, ASIC commenced civil penalty proceedings in the Federal Court against Insurance Australia Limited (IAL) on 15 October 2021 and called on all general insurers to review their pricing practices, systems, and controls as a matter of priority to ensure customers received the full discounts promised.
ASIC subsequently wrote to 11 general insurers, collectively representing around 68 per cent of the general insurance market in Australia, in late October 2021 requiring a comprehensive review of their pricing promises to find any problems, fix deficiencies in their practices, and repay customers who had been overcharged. The insurers reviewed 2,000 price promises across more than 500 general insurance products and 50 brands.
“It is beyond disappointing that despite past ASIC warnings and action, it took our further direction in late 2021 for general insurers to comprehensively find, fix, and repay their customers for these broken promises. Earlier action by insurers would have avoided much of the consumer harm we now see, with $815 million in remediation,” said Chester.
“It’s now up to the boards of general insurers to ensure the prompt and full repayment of the $815 million owed to their 5.6 million customers, implement the fixes needed, and rebuild consumer trust.”
ASIC commenced civil penalty proceedings against Insurance Australia Limited (IAL) in 2021 and RACQ Insurance Limited in 2023 for allegedly failing to honour pricing promises or misleading customers. Last week the Federal Court handed down judgement in the IAL case, penalising the insurer a record $40 million. The commission has other ongoing enforcement investigations into general insurers involving suspected failures to deliver promised price discounts.