ASIC Alleges AIG Misled Customers on Home Insurance Loyalty Discounts

IAG denies allegations

Good home insurance can protect your benefit. Jakub Krechowicz/Shutterstock

The Australian Securities and Investments Commission (ASIC) launched civil penalty proceedings against two subsidiaries of Insurance Australia Group (IAG) for allegedly misleading customers about loyalty discounts to encourage them to renew certain home insurance policies.

This is the second time the company has been caught in a lawsuit against its deceitful practices.

The corporate watchdog said that Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia Pty Limited (IMA) offered faithful customers loyalty discounts to renew their policies, whereas the premiums had already been increased before the discounts were applied.

“We allege that IAG subsidiaries, IAL and IMA, misled their customers about the extent of the discounts they would receive. The way they operated their pricing algorithm meant that some longer-term or more loyal customers were allocated, or may have been allocated, higher premiums before the promised discounts were applied,” ASIC Deputy Chair Sarah Court said on Friday.

“There is a risk that loyal customers, having been promised a discount, were persuaded to stay with these companies, and in doing so lost their opportunity to shop around for a better price.”

ASIC said that IAL and IMA renewed over a million home insurance policies, which involved the SGIO, SGIC, and RACV brands, between January 2017 to December 2022.

They also said that IAL promised a loyalty discount to SGIO and SGIC customers, while IMA committed to a Years of Membership Discount and/or a Multi-Policy Discount to RACV customers between Aug. 25, 2017 and Aug. 24, 2023.

“Insurers should not promise discounts unless they are confident that they can and will deliver them in full. The failure by insurers to deliver on pricing promises is a key priority for ASIC, and we will continue to take enforcement action to hold insurers to account,” the deputy chair said.

“Where insurers make discount promises to renewing members, they need to have robust systems and controls in place, especially where complex pricing systems and algorithms are used, so they can be sure they are delivering on these promises.”

IAG Denies Allegations

The watchdog said it is seeking declarations of contravention, pecuniary penalties, and adverse publicity orders against the two IAG subsidiaries in court.

IAG denied the allegations and said it would defend the proceedings in court.

“IAL and IMA maintain they have delivered on loyalty promises made to customers, do not agree that they have misled customers about the extent of the discounts they would receive, and intend to defend the proceedings,” IAG said.

In June, IAG was fined $40 million for pricing discount failures, the largest penalty ever imposed on an insurance provider for violating financial laws.

On Monday, IAG reported an annual 139.8 percent surge in net profit to $832 million in fiscal 2023 from $347 million, benefiting from a post-tax business interruption provision release of $392 million. IAG also hinted at a hike in insurance premiums for fiscal 2024 amid inflationary pressures, higher reinsurance and natural perils costs.

The company said it is increasing natural perils allowance by 26 percent to $1.147 billion (US$731 billion), up from $909 million in 2023. The company estimates that around 20 percent of the premiums it collects now cover reinsurance costs and the perils allowance.