Australia’s largest insurance company has been hit with the largest-ever penalty imposed by the courts against an insurer for failing to give promised discounts to NRMA customers.
The Federal Court has ordered Insurance Australia Limited to pay $40 million (US$26.4 million) after finding the company, wholly owned by ASX-listed Insurance Australia Group, made false or misleading representations to more than 600,000 customers between March 2014 and September 2019.
IAL promised customers loyalty and bonus discounts on their NRMA-branded motor, home, boat, and caravan insurance renewals but failed to follow through.
The insurer used a specific pricing algorithm that ensured customers’ insurance premiums did not fall below a certain price point, Australian Security and Investment Commission deputy chair Sarah Court said.
“This pricing method meant promised discounts were not passed on, and customers paid more in premiums than they had been promised,” she said in a statement following the court judgment on Friday.
IAL admitted it had broken the law, has apologised and made remediation payments to all affected customers. As well as paying the penalty, it will pay ASIC’s legal costs.
The corporate watchdog says it has been cracking down on loopholes used by insurers after a report released last week found 5.6 million customers of various companies have likely been overcharged in their policies.
Pricing promises and practices that were unnecessarily complex were responsible for at least $379 million of the compensation due, ASIC said.
Persistent underinvestment in systems, controls and data also contributed.
The watchdog launched legal action in February against another Australian insurer, RACQ, after the company self-reported promise failures affecting 500,000 customers and potentially costing the group up to $220 million.
It’s believed one-in-three Australian adults are owed money from a compensation pool of $815 million after being overcharged on insurance policies.
