ASIC takes aim at insurers over complex pricing models, failure to pass on discounts

Insurers will be forced to repay more than 5.6 million customers after the corporate regulator found they had complex and opaque pricing models.

Insurers have pledged to implement centralised pricing ­improvements after receiving a lashing from the corporate regulator in a report that found the ­industry had unnecessarily complex systems to price policies.

The Australian Securities & Investments Commission, in the report published on Friday, found insurers did not have adequate product governance systems in place, with systems, data and controls failing to ensure the industry delivered on pricing promises to customers.

ASIC’s excoriation comes after the regulator wrapped up a long-running review of the industry, triggered after the regulator’s intervention in the market in October 2021, demanding insurers pay up for past pricing failures.

The report finds that the failure of insurers to pass on pricing promises provided to customers when they were offered discounts or deals resulted in more than 5.6 million customers being overcharged.

ASIC said the industry had billed insurance customers $815m more than they should have paid for their cover. Several insurers have faced legal action from ASIC, with IAG and RACQ both dragged to court over their failures. The regulator said insurers should remove all unnecessary pricing complexity from their models and fix systems, practices and controls “so they can deliver on the pricing promises they make to their customers”.

ASIC deputy chair Karen Chester said the report showed there were systemic pricing failures among insurers, which had been on notice about the issues for years.

Ms Chester said “unnecessary complexity in pricing promises and pricing practices” accounted for at least $379m of the insurance industry’s pricing failures.

She said insurers had persistently underinvested in the systems, controls and data for years.

“And perhaps the most disappointing [was] insurers’ inaction despite being on notice for years about these pricing risks,” she said. “It is beyond disappointing that despite past ASIC warnings and action, it took our further ­direction in late 2021 for general insurers to comprehensively find, fix and repay their customers for these broken promises.”

Ms Chester told The Australian insurers should now deal with the issues raised by the regulator. “The ball is squarely in their (the boards’) court now to follow through, and promptly. ASIC’s unfinished business here is the current civil proceedings and investigations,” she said.

An Insurance Council of Australian spokeswoman said the ­industry was implementing centralised pricing promise systems “to support future pricing controls”.

“While the number of breaches identified and amount of remediation required is disappointing, ASIC notes that general insurers are fixing identified failures in pricing practices,” she said.

She said the industry was looking at “ways to improve the products and services”, including “commissioning an external review to examine the industry’s ­response to last year’s flooding in South East Queensland and northern NSW to identify lessons learned and opportunities for improvements”.

The insurance sector has locked away hundreds of millions in provisions over recent earnings periods to cover potential payouts from pricing remediation.

The Australian has previously revealed listed insurer QBE and ASIC engaged in a seven month exchange over the insurer’s pricing failures before publicly revealing it would cop a $US75m ($110m) hit in the form of a provision to cover remediation.

IAG booked a $309m customer refunds provision in June last year, but confirmed in December it had paid this down to $186m.

An IAG spokesman said the insurer had nearly completed its remediation refunds to impacted customers “with the remainder on track to be sent over the next couple of months”.

IAG, which disclosed its pricing issue in 2019, has attributed its failures to the interplay of a multitude of pricing systems assembled by the insurer over decades.