IAG will report an earnings impact of less than $50 million after settling a class action brought over add-on products sold through vehicle and motorcycle dealerships

The insurer has agreed to pay $138 million under the settlement, subject to Federal Court approval, with the after-tax impact on the half-year result to be reduced by insurance recoveries.

The matter was brought against subsidiaries Swann Insurance and Insurance Australia Limited by legal firm Johnson Winter & Slattery, with litigation funding from Balance Legal Capital.

“The settlement is a great outcome for group members enabling them to recover a significant proportion of their alleged financial loss without going to court,” the law firm said.

Swann exited the sale of the products through motor vehicle dealers in 2016 and stopped selling through motorcycle outlets in the 2018 financial year.

Add-on product sales were scrutinised by the Hayne royal commission, with IAG required to appear during hearings, while the Australian Securities and Investments Commission has previously ordered insurers to refund money paid for products that provided little or no value.