‘Do promises really mean anything?’ Australia’s largest insurer sued over false promises on discounts

Australia’s largest insurer potentially faces a multimillion dollar penalty after the corporate regulator launched Federal Court proceedings over allegations it did not pass on the full discounts promised to more than half a million loyal customers over a five-year period.

The Australian Securities and Investments Commission (ASIC) is suing QBE Insurance, arguing the industry giant’s pricing mechanism eroded the discounts customers should have received between 2017 and 2022.

ASIC Deputy Chair Sarah CourtCredit: Edwina Pickles

“We’ve been saying for a number of years this issue of failing to deliver on pricing promises is a critical one for the industry,” ASIC deputy chair Sarah Court told this masthead.

“There’s a range of harms [arising from those issues] – the harm to the individual consumers who are out of pocket and paying more than they should. There’s the competitive detriment because it’s really hard to compare policies if you think you’re getting discounts and you’re not. And then there’s the overarching trust in the system – developing cynicism, and do promises really mean anything?”

In documents filed with the Federal Court, ASIC says QBE engaged in conduct that misled the public about the way it calculated discounts on premiums, and that it knew its pricing mechanism limited those promised discounts.

Court said the algorithm of QBE’s pricing mechanism pushed up the base premium the discount was applied to, which had the effect of offering lower discounts – and in some cases none at all – to retirees, loyal customers, QBE shareholders, those holding multiple policies, and customers who had never made any claims.

The corporate regulator is taking the insurer to court over claims it didn’t give discounts it had promised to customers.Credit: Bloomberg

The two-year investigation arose after ASIC wrote to all insurers in 2021 expressing concerns their discount promises were not being honoured. QBE Insurance conducted an external review of its pricing mechanism a year later, and notified ASIC it had identified “inconsistencies”.

It set aside $US75 million in the first half of the 2022 financial year for “expected customer remediation, interest payable and costs for administering the program” over the issue.

ASIC has taken similar action against IAG subsidiaries in 2023, including NRMA for misleading loyalty discounts that resulted in a $40 million penalty; as well as RACQ for pricing discount failures that resulted in a $10 million penalty.

“We have very squarely and clearly put the industry on notice about our concerns,” Court said.

“We think it’s a really significant problem in terms of cost-of-living and the material amounts of money customers are not receiving. We’re going to continue to monitor the issue to the extent there is continuing conduct. We would certainly hope not and there would be no excuse for that occurring.”

Insurers have paid back more than 5.5 million customers $800 million since 2018 for pricing failures, according to a 2023 ASIC report.

In a statement to the ASX on Wednesday, QBE Insurance apologised for the “inconsistent” way it applied discounts for customers, and said it understood the importance of honouring promises.

“The proceedings relate to previously reported inconsistencies in the delivery of price promises made to customers with caravan, householders, marine and motor policies issued between 1 July 2017 and 24 September 2022,” a spokesperson said.

“Following an external review of its pricing practices in 2022, QBE has taken steps to address the inconsistencies, reported the issues to ASIC and has co-operated with ASIC’s investigation which has culminated in today’s development.”

Shares in QBE closed the trading day 0.4 per cent weaker at $17.09.

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.