IAG in class action over junk add-ons

IAG has been hit with a class-action lawsuit over the sale of junk add-on car and motorcycle insurance by subsidiary Swann.

Insurance Australia Group has been hit with a class-action lawsuit with a potential face value of as much as $100m over the sale of junk add-on car and motorcycle insurance by its subsidiary Swann Insurance over the past decade.

In a statement of claim filed with the Federal Court, law firms Johnson Winter & Slattery and Bannister Law, which are co-operating on the class action, accuse IAG of engaging in misleading or deceptive conduct by selling the products.

The products were sold through car and motorbike dealers who trousered mammoth commissions of up to 51 per cent of the premium and were showered with bonuses and gifts as incentives to sell as many policies as possible.

In September, the Hayne royal commission heard that over the last decade Swann sold 850,000 policies, less than 10 per cent of which drew a claim, and IAG reaped in more than $1 billion in premiums.

Swann was aware that the add-on products, which included loan protection, breakdown and tyre and rim insurance, “had no or no material value” and had “low and in some cases negligible claim payouts relative to the premiums that were paid by policyholders”, JWS and Bannister said in their statement of claim.

They accused the insurer of misleading customers into thinking they needed to buy the worthless insurance in order to get a loan to buy a car or motorbike.

“Swann has been unjustly enriched by the receipt of the premiums at the expense of the applicant and the group members and it would be unconscionable for Swann to retain the premiums,” the law firms said.

They asked the court to order IAG to return “the full amount of the premiums” paid by customers between 2008 and August 2017 and find the company in breach of laws prohibiting misleading and deceptive conduct and unconscionable conduct by a financial services licensee.

At the royal commission, IAG head of business distribution Ben Bessell was grilled on the matter and admitted Swann had no real oversight of how its authorised representatives in dealerships were selling the insurance, which was marketed in conjunction with car and motorcycle sales using high-pressure sales tactics.

Commissioner Kenneth Hayne highlighted three breaches of legislation by Swann in the royal commission’s final report. The breaches were not, however, referred to the respective regulator for further action.

IAG initially released a scant ASX statement yesterday of two sentences acknowledging the legal action, before a spokesman provided further comment saying IAG was “in the process” of reviewing the statement of claim and no longer sells add-on insurance.

“Swann no longer sells add-on insurance products but continues to support customers with existing policies. Swann now only offers comprehensive motorcycle insurance directly to customers via its website,” he said.

“As we’ve previously acknowledged, for many customers, the Swann add-on insurance products did not deliver the value they should have.”

IAG has so far refunded more than $22 million to more than 38,000 customers as it works toward repaying $39m as part of an agreement with the corporate regulator. Other compensation from add-on car insurance includes Allianz’s $45.6m, Suncorp’s $17.2m and QBE’s $15.9m.

IAG’s shares fell 0.3 per cent to $7.57 yesterday.