IAL receives largest-ever insurance penalty for consumer protection breaches
Insurance Australia Ltd (IAL) has been penalised $40 million by the Federal Court in the largest-ever penalty imposed against an insurer for breaches of consumer protection law.
The firm has been penalised for failing to honour discount promises made to customers who held NRMA-branded insurance policies.
The Court found IAL, part of Insurance Australia Group, made false or misleading representations to over 600,000 customers between March 2014 and September 2019, by failing to deliver the full amount of loyalty and no claims bonus discounts promised to customers when they renewed their NRMA-branded motor, home, boat and caravan insurance policies.
The Court found that IAL made false or misleading representations to the affected customers that their renewal premiums:
- Had been calculated as set out in IAL’s Premium, Excess and Discounts guide;
- Included the full value of discounts that the customers expected to receive; and
- The discounts were applied to the base premium that IAL would have otherwise charged them.
However, the pricing algorithm implemented by IAL applied the discounts to a higher base premium than the impacted customers would otherwise have been charged, ensuring the discounts did not result in their premiums decreasing by more than a set percentage of their previous year’s premium.
ASIC deputy chair, Sarah Court, said: “IAL used a specific pricing algorithm that limited the discounts 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.
“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.”
IAL has admitted it contravened the law and the parties jointly submitted that the penalty sought by ASIC was appropriate. IAL is also ordered to pay ASIC’s costs of the proceedings.
In a statement to the ASX responding to the penalty, parent company IAG said: "The penalty relates to a self-identified failure of IAL, a subsidiary of IAG, to pass on full discounts to a significant number of NRMA Insurance Home, Motor, Caravan and Boat insurance customers between March 2014 and September 2019. IAG has apologised for this failure, recognised its significance and that this was unacceptable. IAG's focus has been on putting this right for its customers, as quickly as possible. Refunds have been issued to all customers impacted by the failure.
"IAG has engaged with ASIC on this matter and on IAG's broader pricing review and remediation program to provide refunds to customers who didn't receive the full discounts they were entitled to. IAG has issued refunds to 99 per cent of impacted customers, with the remaining refunds expected to be issued over the next two months.
"The $186 million customer refund provision that IAG reported in its financial statement to 31 December 2022 is sufficient to provide for this penalty amount."
AUTHOR
Laura Dew
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So, what are the remediation details please Laura? That's a pretty big part of this story I'd say - if not the biggest. $40 mil as a penalty is great and all but how and when do the aggrieved consumers get remediated? Laura? Anybody?