ASIC has commenced civil penalty proceedings in the Federal Court alleging RACQ Insurance Limited (RACQ) misled customers in its product disclosure statements about the pricing discounts available for certain types of insurance cover.
Between February 2017 and March 2022, ASIC alleges product disclosure statements for RACQ’s Motor, Home, Caravan & Trailer and Unique Vehicle insurance policies included statements that certain discounts would be applied to customers’ insurance premiums.
ASIC alleges that these statements were misleading because the discounts were only applied by RACQ to the base insurance premium, and not to additional premiums paid for certain optional extras.
ASIC Deputy Chair Sarah Court said, ‘We allege that RACQ misled its customers about the discounts to which they were entitled. 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 in this regard.’
Ms Court said that pricing failures are an industry-wide issue.
‘RACQ is not the only insurer to have reported pricing failures to us,’ she said. 'ASIC has previously taken action against Insurance Australia Limited, and we consider there needs to be a general improvement in insurers’ risk and compliance management arrangements to ensure robust systems and controls are in place, enabling insurers to deliver on their pricing promises,' she said.
The RACQ product disclosure statements have since been updated and it has committed to a remediation program for a range of pricing promise failures, not limited to those failures outlined in this release. Up to 500,000 members are expected to receive refunds, with RACQ reporting the total cost to RACQ could reach up to $220 million.
RACQ self-reported the pricing failure after ASIC called on general insurers to review their pricing practices in October 2021. ASIC will deliver a report on its review of pricing practices in the insurance industry in the first half of 2023.
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Background
RACQ is a wholly owned subsidiary of The Royal Automobile Club of Queensland Limited, a mutual organisation owned by its nearly 1.8 million members. RACQ offers consumers a range of general insurance products including Household, Motor Vehicle, Caravan & Trailer and Unique Vehicle Insurance.
RACQ is ranked 8th and 10th in Australia by gross premium written for Motor Vehicle and Home Insurance respectively. For each of these general insurance products, RACQ offers certain optional benefit covers, the purchase of which requires the consumer to pay a premium in addition to the base premiums paid for the general insurance products. RACQ also offers certain discounts on these general insurance products.
The affected optional benefits were Excess Free Windscreen, Hire Car, No Claim Discount Protection, Increased Caravan Contents, Pet, Mobile Phone, Small Business Contents and Items Away From Home; as well as the additional premium charged by RACQ for household insurance purchased for unoccupied properties. The product disclosure statements for these insurance products could be downloaded from RACQ’s website by prospective customers and were sent to all customers at the beginning of an insurance contract.
On 15 October 2021, ASIC called on general insurers to review their pricing practices, systems and controls as a matter of priority to ensure customers get the full discounts they are promised. This followed industry-wide failures that had already led to more than $400 million in remediation being paid to over 2 million home, car and other insurance customers since 2018 (21-270MR).
ASIC continues to monitor marketing and pricing practices in the general insurance industry and will use the full range of regulatory tools available to protect consumers from general insurers failing to honour promised discounts.
Editor's note:
The first case management hearing has been set down for 13 April 2023.
Editor's note 2:
The first case management hearing occurred on 13 April 2023 before Justice Downes. A further case management hearing is scheduled for 11 July 2023.
Editor's note 3:
The case management hearing scheduled for 11 July 2023 has been vacated. The next case management hearing has been set down for 11 August 2023.
Editor's note 4:
At the case management hearing on 11 August 2023, timetabling orders were made and the matter was set down for a two-day hearing on penalty on 13 and 14 December 2023.
Editor's note 5:
The penalty hearing has been scheduled before Justice Downes on 30 November 2023.