ASIC has commenced civil penalty proceedings in the Federal Court alleging IAG-subsidiaries, Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia Pty Limited (IMA), misled customers about the loyalty discounts available for certain types of home insurance.

ASIC 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.

Between January 2017 to December 2022, IAL and IMA renewed over one million home insurance policies. The policies involved are the SGIO, SGIC and RACV brands.

ASIC Deputy Chair Sarah Court said, ‘We allege that IAG subsidiaries, IAL and IMA, misled their customers about the extent of the discounts they would receive. 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 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’, and
• 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.

‘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,’ concluded Ms Court.

ASIC is seeking declarations of contravention, pecuniary penalties and adverse publicity orders against IAL and IMA from the Court.

The date for the first case management hearing is yet to be scheduled.

Background

When calculating a renewing customer’s premium, IAL and IMA used an algorithm to determine a customer’s likelihood to renew at different premium levels. The purpose of the algorithm was to allocate a smaller relative price increase to policies that were less likely to renew and a larger relative price increase to policies that were more likely to renew. This either did, or may have, resulted in some loyal customers receiving a larger relative price increase to their policy before the discounts were applied.

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 (23-179MR).

ASIC has also commenced court action against RACQ for allegedly misleading statements regarding price discounts on certain optional insurance covers (23-038MR).

Responding to failures by providers of general insurance to deliver on their pricing promises is one of ASIC’s enforcement priorities. General insurers are remediating over $815million to more than 5.6 million consumers for pricing failures reported to ASIC since 1 January 2018.

ASIC’s Report 765 When the price is not right: Making good on insurance pricing promises, released in June 2023, outlines a range of pricing failures identified by general insurers after an ASIC-initiated review of their pricing practices. It confirms the standards general insurers need to meet in designing and promoting pricing promises to ensure get the full benefit of any discounts promised – including loyalty promises.

ASIC’s Moneysmart website features information that supports Australian consumers in making decisions about insurance. It’s important to compare policies from different insurers and to shop around for the best value for money. Find out more about choosing car insurance and home insurance.

Editor's note:

On 21 December 2023, ASIC filed an amended Originating Process and Concise statement. The media release was updated with the amended court documents.

Editor's note 2:

On 5 March 2024, the court made a number of timetabling orders. The matter has been listed for a case management hearing on 3 October 2024.