The Australian Securities and Investments Commission (ASIC) says a systemic failure by insurers to deliver on pricing promises has seen more than 5.6 million consumers overcharged $815 million for their policies.

The ASIC report, When the price is not right: Making good on insurance pricing promises, finds that unnecessary complexity in promises and practices accounted for at least $379 million of the remediation.

Persistent underinvestment in systems, controls and data has also been a factor and insurers failed to take action despite being on notice for years about the risks, the regulator says.

“It is beyond disappointing that despite past ASIC warnings and action, it took our further direction in late 2021 for general insurers to comprehensively find, fix and repay their customers for these broken promises,” Deputy Chair Karen Chester said today.

“Earlier action by insurers would have avoided much of the consumer harm we now see.”

ASIC says the report explains how failures by insurers to manage non-financial risk have led to significant consumer harm and outlines the standards that need to be met in designing and promoting pricing promises to ensure consumers get the full benefit.

The regulator directed 11 insurers in October 2021 to complete comprehensive reviews to find, fix and report any issues and repay customers where necessary. The reviews involved 2000 price promises across more than 500 products and 50 brands. More than 30,000 call centre calls were also examined.

ASIC commenced civil penalty proceedings against IAG in 2021 and RACQ Insurance in 2023 for allegedly failing to honour pricing promises or misleading customers, and says further investigations are underway.

The Insurance Council of Australia (ICA) says the ASIC report will be closely examined to understand improvements needed to ensure better outcomes for customers.

“While the number of breaches identified and amount of remediation required is disappointing, ASIC notes that general insurers are fixing identified failures in pricing practices and improving systems, controls, processes and governance to ensure pricing promises made to consumers are honoured,” a spokesperson said. 

“All insurers that participated in the review have implemented or are implementing a centralised pricing promise system to support future pricing controls and are taking steps to improve the monitoring and oversight of pricing promises.”

ICA says the industry will continue to identify ways to improve products and services offered.