IAG will pay $138 million to settle a class action brought against Swann Insurance over add-on products sold through vehicle and motorcycle dealerships.

The settlement is subject to approval by the Federal Court, which had held preliminary hearings into the matter filed by legal firm Johnson Winter & Slattery.

Following insurance recoveries, IAG expects to report an after tax impact of up to $50 million from the outcome in its earnings statement for the December half.

The class action, concerning six add-on products sold from January 2008 to August 2017, spanned up to 673,000 individual transactions entered into by several hundred thousand policyholders.

Senior counsel for IAG submitted during a hearing on litigation funding arrangements last year that the sums involved could be “in the order of $600 million to $1 billion”.

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

Johnson Winter & Slattery acted for lead applicant Jones Asirifi-Otchere in the proceedings, funded by Balance Legal Capital. The action alleged Swann engaged in conduct that breached consumer law and the Australian Securities and Investments Commission (ASIC) Act.

“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 firm said today.

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

ASIC has this year consulted on a draft product intervention order for future processes. New arrangements would include a deferred sales model and other measures aimed at preventing high-pressure tactics at the time of purchase of the major item.