Stop misleading discount tactics: ASIC sues IAG again over insurance pricing

ASIC’s lawsuit alleges insurer IAG’s pricing algorithms actually calculated higher prices for customers who were more likely to pay more to renew.

ASIC Deputy Chair Sarah Court. Picture: NCA NewsWire / Ian Currie

Australia’s corporate watchdog has accused IAG of falsely promising loyalty discounts to customers when in reality their policies had likely been increased before the discounts applied, in the second lawsuit against Australia’s largest insurer over deceptive discount tactics.

ASIC on Thursday launched civil penalty proceedings against Insurance Australia Limited and Insurance Manufacturers of Australia Pty Limited, the IAG subsidiaries behind home and content insurance sold under the SGIO Insurance, SGIC Insurance and RACV brands.

IAG said it does not agree with the claims and intends to defend the proceedings.

The regulator claims IAG’s pricing algorithms calculated price increases to home insurance policies based on a customer’s likelihood to renew their policy at different levels.

If the customer was less likely to renew at higher prices, they would get a smaller price increase, but if the statistical model showed they were more likely to renew at a higher price they would get a larger hike.

This was not told to customers, and instead they falsely claimed to give “loyalty” discounts, ASIC’s statement of claims says.

Instead, IAG offered “misleading” loyalty discounts based on the time they’ve been a customer, to encourage customers to renew their home insurance policies.

The IAG subsidiaries “misled their customers about the extent of the discounts they would receive,” ASIC deputy chair Sarah Court said.

“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 says that between January 2017 to December 2022, IAL and IMA renewed over one million home insurance policies. ASIC’s lawsuit is seeking pecuniary penalties and an adverse publicity order against IAG’s subsidiaries from the court.

“Insurers should not promise discounts unless they are confident that they can and will deliver them in full,” Ms Court said.

“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.”

In a statement, IAG said its subsidiaries “maintain they have delivered on loyalty promises made to customers,” and that they “do not agree that they have misled customers about the extent of the discounts they would receive.”

It said it intends to defend the proceedings in court.

Earlier this year, IAG was fined a record $40m for deceiving hundreds of thousands of customers that paid over $1.1bn in home, motor, boat and caravan insurance premiums.

The lawsuits come as IAG last week reported a 140 per cent profit bump to $832m, as customers were sticking by their insurance despite a 10.6 per cent increase in prices across its brands.

The insurer also said it plans to lift insurance premiums by double digits in the year ahead, blaming inflation and the cost of reinsurance for the expected hikes.

Originally published as Stop misleading discount tactics: ASIC sues IAG again over insurance pricing