ASIC launches action against Insurance Australia Group subsidiary for failing to pass on discounts

ASIC is taking IAG subsidiary Insurance Australia Limited to court for allegedly failing to pass on $60m in discounts to its customers – and is warning the industry more action could follow.

Treasurer Josh Frydenberg with new ASIC Chair Joe Longo and Deputy Sarah Court. Ms Court has warned insurers to double check their advertised discounts are being passed on to customers.

The corporate cop has warned insurers to double check they are correctly charging policy holders or be prepared to face the consequences, after launching court action against Insurance Australia Group (IAG) for allegedly failing to pass on $60m in discounts to more than half a million NRMA customers.

Australian Securities and Investments Commission (ASIC) Deputy Chair Sarah Court said the court action was part of the regulator’s efforts to rectify “widespread and systemic compliance failures” in the insurance industry that has seen insurers repay more than $400m to more than two million overcharged customers since 2018.

“We are aware that there are continuing issues in relation to the pricing practices of insurers,” Ms Court said on Friday.

“We have been talking to the industry about those issues. This action, taken in relation to the NRMA insurance customers, should send a fairly strong indication to the industry that we will continue to be active in this area.

“And certainly if we see these issues continuing, then further action from ASIC may follow.”

ASIC filed civil penalty proceedings against Insurance Australia Limited (IAL), a subsidiary of $12.5bn insurance giant IAG, in relation to home and motor insurance policies it underwrites and distributes under the NRMA insurance brand.

It alleges IAL engaged in misleading or deceptive conduct towards almost 600,000 NRMA Insurance customers between 2014 and 2019 by informing them they were eligible for discounts on the renewal of their policies, but failing to apply them.

It is claimed IAL increased the customers’ gross insurance premiums that would apply to these customers, effectively cancelling out the effect of any advertised discount in a process the regulator termed “cupping.”

At least 596,000 customers were hit by the practice, in around 1,785,000 instances across 705,000 separate insurance policies, ASIC claims.

The impacted customers allegedly did not receive promised discounts totalling around $60m.

In a statement to the ASX IAG acknowledged the court action and its failure to pass on discounts to a “significant” number of NRMA Home customers.

It said it self-reported the issue to ASIC in 2019 and had engaged in a remediation program that has so far compensated 80 per cent of impacted NRMA customers.

“IAG apologises for this failure, recognises the significance and that this was unacceptable, and is putting this right for its customers as soon as possible,” it said.

“Since late 2019, IAG has enhanced its systems and processes for the delivery of discounts, as part of its significantly improved risk culture and control environment.”

Ms Court said although IAG self-reported the issue and was compensating impacted customers, ASIC chose to litigate to deter this behaviour in the future.

“We recognise that IAG is paying remediation, but we think this needs a stronger enforcement response and so we are going to court so the court can make findings whether this conduct breached the law,” she said.

“The importance of the regulatory action is that it will send a deterrence both to IAG specifically, but also to the industry more broadly about the seriousness with which we view this kind of conduct.”

Ms Court called on the insurance industry to “very carefully and very quickly” review whether it was charging its customers correctly but double checking customer offers and fixing systems, processes and controls that have led to any errors.

IAG said compensation payouts to the NRMA customers are covered by a customer refund provision, but any civil penalty relating to ASIC’s court action will not be covered.

“The customer refunds associated with these proceedings are covered by the customer refund provision that was established in FY20 and FY21, which also covers other products and pricing-related matters, but does not include any potential civil penalty outcome,” it said.

IAG shares closed at $4.92, down 3.2 per cent.