Insurance company IAG has been handed a massive $40 million fine after the Federal Court found it had failed to pass on promised pricing discounts to customers of NRMA-branded insurance products.
The case, brought by the corporate regulator Australian Securities and Investments Commissions (ASIC), is the largest fine ever delivered for breaches of Australia's financial services consumer protection laws.
The Court found that between March 2014 and September 2019, Insurance Australia Limited (IAL), which is wholly owned by IAG, made false or misleading representations to more than 600,000 customers when they renewed their NRMA-branded motor, boat, caravan or home insurance policies.
Insurer used pricing algorithm to limit discounts
ASIC said IAL failed to deliver on customer loyalty and the 'no claims bonus' discounts that had been promised.
"IAL used a specific pricing algorithm that limited the discounts [that] renewing customers could receive, ensuring their premiums did not fall below a certain price point. This pricing method meant promised discounts were not passed on and customers paid more in premiums than they had been promised," ASIC deputy chair Sarah Court says.
ASIC has called on all general insurers to ... fix their systems, practices and controls to ensure they deliver on the pricing promisesASIC deputy chair Sarah Court
"Pricing failures are unfortunately an industry-wide issue. ASIC has called on all general insurers to remove unnecessary pricing complexity and fix their systems, practices and controls to ensure they deliver on the pricing promises they make to their customers."
Last month ASIC ordered general insurers to refund a total of $815 million to customers who'd been overcharged after the insurers failed to meet pricing promises made at the time of customer sign up.
Shabby treatment of loyal customers 'systemic' to industry
CHOICE head of policy and government relations Patrick Veyret says at this time of heightened cost of living pressures, insurers need to be honest about their pricing claims.
"The pricing promises made by insurers can be extremely complex, making comparison a challenge for consumers. Insurers need simpler and fairer pricing structures," he says.
"This is yet another wake-up call for the insurance industry to clean up its act."
The pricing promises made by insurers can be extremely complex, making comparison a challenge for consumersCHOICE head of policy and government relations Patrick Veyret
Veyret has called on ASIC to take further action against major insurers for taking advantage of their customers, and says that recent actions show that the conduct is "systemic" across the industry.
"This case reveals how insurers treat their loyal existing customers much worse than new customers," Veyret says.
Stock images: Getty, unless otherwise stated.