Australia's corporate regulator, ASIC, has commenced legal proceedings against insurer IAG (ASX:IAG) and its two subsidiaries, accusing them of misleading customers regarding loyalty discounts offered for specific categories of home insurance.
The case has far-reaching implications, potentially encompassing more than one million home insurance policies across various states from January 2017 to as recently as August this year.
ASIC has filed civil penalty proceedings in the Federal Court against the IAG subsidiaries, namely Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia Pty Limited (IMA).
In a previous instance, ASIC secured a $40 million judgement from the Federal Court for failures related to pricing discounts.
The regulatory authority alleges that the loyalty discounts designed to incentivize customers to renew their home insurance policies were deceptive, as loyal customers may have experienced premium increases before the discounts were actually applied.
Deputy Chair of ASIC, Sarah Court, emphasized in a statement on Friday: "We allege that IAG subsidiaries, IAL and IMA, misled their customers about the extent of the discounts they would receive."
"Their pricing algorithm's operation resulted in some longer-term or loyal customers being assigned, or potentially being assigned, higher premiums prior to the application of the promised discounts."
She highlighted the risk that loyal customers, enticed by promised discounts, might have chosen to remain with these companies, missing out on the opportunity to explore better-priced alternatives.
ASIC's allegations extend to the period between August 25, 2017, and August 24, 2023:
IAL made statements regarding its SGIO and SGIC branded home insurance policies, asserting that SGIO and SGIC customers would be granted a 'Loyalty Discount.'
IMA made statements about RACV branded home insurance policies, both on websites and in other documents, assuring RACV customers of a 'Years of Membership Discount' and/or a 'Multi-Policy Discount.'
IAG's pricing algorithm functioned inconsistently with their discount commitments, leading to IAG's failure to uphold operational efficiency, honesty, and fairness.
"Insurers that make discount commitments to their renewing members need to establish robust systems and controls, especially when intricate pricing systems and algorithms are involved. This ensures that they can fulfill these commitments effectively."
"Insurers should not make discount promises unless they are confident in their ability and intention to fully honor them. Holding insurers accountable for their failure to uphold pricing commitments is a top priority for ASIC, and we will persist in taking enforcement actions," Ms. Court reiterated.
ASIC disclosed its pursuit of declarations of contravention, pecuniary penalties, and orders for adverse publicity against IAL and IMA from the Court.
