IAG Ordered to Pay $40 Million Penalty for Misleading Discount Promises
Article Source 2 min read
On 3 July 2023, Insurance News reported that the Australian Securities and Investments Commission (ASIC) has urged insurers to improve their systems following a major Federal Court decision involving Insurance Australia Group (IAG). The Court found that IAG made false and misleading representations to customers regarding loyalty discounts.
The case involved policies issued by NRMA Insurance, a subsidiary of IAG, covering home, motor vehicle, caravan and boat insurance. IAG admitted that approximately 600,000 customers did not receive the loyalty discounts they had been promised. This misconduct was self-reported by IAG.
Federal Court Penalty and ASIC’s Response
The Federal Court imposed a civil penalty of $40 million, plus legal costs. This is the largest penalty ever issued against an insurer for breaching consumer protection laws under the ASIC Act and the Corporations Act.
IAG issued a public apology, acknowledging the seriousness of the conduct. The company stated that it has refunded affected customers and is committed to addressing the failures in its pricing systems.
In response to the outcome, ASIC Deputy Chair Sarah Court commented that pricing failures are not unique to IAG. She noted that such failures are common across the insurance industry. ASIC has called on all general insurers to simplify their pricing structures and to ensure that internal systems deliver on pricing promises made to customers.
What Went Wrong
According to the Court, IAG used a pricing algorithm that deliberately limited the amount of discount available to renewing customers. This ensured that premiums remained above a certain level, even when a loyalty discount was promised. As a result, many customers received inaccurate or misleading information about the discounts they were eligible for.
What This Means for Policyholders
This decision highlights the importance of transparency and fairness in insurance pricing.
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