ASIC alleges IAG slugged faithful SGIO, SGIC and RACV insurance clients on home insurance

ASIC alleges the nation’s largest insurance company repeatedly broke the law by misleading policyholders and failed to treat them efficiently, honestly and fairly. See the claims.

Australia’s biggest insurer, IAG, has been accused of ripping off thousands of home insurance customers by secretly using their loyalty to the company against them when calculating their premiums.

In Federal Court proceedings the Australian Securities and Investments Commission claims that for the past six years IAG promised customers of its SGIO, SGIC and RACV brands that they would get a discount when renewing their home insurance based on how long they had been with the company and how many policies they had.

However, the same factors were among those used by a secret algorithm to jack up the base premiums IAG charged, ASIC alleges.

The regulator claims IAG, which this week saw its profit soar 140 per cent to $832m, has repeatedly broken the law by misleading policyholders and failing to treat them efficiently, honestly and fairly.

Floods like these in Lismore last year have resulted in soaring complaints against insurers. Picture: Darren Leigh Roberts.

If ASIC wins IAG could face a fine in the tens or hundreds of millions of dollars because up to 1m customers were allegedly affected and each breach of the law since 2019 can theoretically attract a penalty of $15m.

ASIC deputy chair Sarah Court said there was “a pricing mechanism behind the scenes that is completely opaque to customers, not disclosed in any way”.

“And those very same factors that are being said to give you a loyalty discount are being fed into this pricing mechanism with the result in our assessment, that the base premium may be or is likely to be increased,” Ms Court said.

Managing Director and CEO Nick Hawkins. Picture: Dan Gray

As a result, “the customer is not getting the full extent of the discount that being promised”, she said.

In a statement, IAG did not dispute ASIC’s allegation that a secret algorithm existed that increased base prices for loyal customers but said it would defend the case.

The two subsidiaries targeted by ASIC “maintain they have delivered on loyalty promises made to customers, do not agree that they have misled customers about the extent of the discounts they would receive, and intend to defend the proceedings,” IAG said in a statement authorised by its general counsel.

IAG’s $2.9m-a-year chief executive, Nick Hawkins, who this week trumpeted the company’s bumper profit result and promised a second year running of premium increase pain, was not available for comment.

ASIC’s case against IAG is part of a broader project to clean up the insurance industry, which it has warned needs to fix problems including a blowout in claims handling times, soaring complaints and failure to deliver on promises about prices.

In June, IAG paid a $40m penalty for failing to deliver on pricing promises to NRMA customers because its algorithm capped the maximum discount available.

The industry as a whole is on track to repay $815m to more than 5.6m customers ripped off by overpriced premiums.

Originally published as ASIC alleges IAG slugged faithful SGIO, SGIC and RACV insurance clients on home insurance