IAG says it will defend a Slater and Gordon class action launched in the Victorian Supreme Court that alleges customers were falsely promised loyalty discounts to encourage home and contents policy renewals.

The class action relates to RACV, SGIO and SGIC renewals that are also the subject of Federal Court action taken by the Australian Securities and Investments Commission, which IAG is contesting. 

Slater and Gordon says more than 1 million people renewed their insurance with the brands over the six-year period for which the claim is brought, and the class action could be worth millions of dollars.  

The law firm alleges the insurer engaged in misleading, deceptive and unconscionable conduct by telling customers they were receiving loyalty discounts, when they may in fact have been charged an artificially higher base premium so the price was not cheaper.

Class actions practice group leader Ben Hardwick says a pricing algorithm identified a customer’s perceived price elasticity, with policyholders deemed unlikely to switch insurers facing steeper premium increases. 

“Those customers who were loyal and were sticking with their insurance company were labouring under the misapprehension that they were getting a discount on their insurance policies, when in fact the insurers were ramping up their base premiums before the discount was applied,” he said.

“Home and contents insurance is among the biggest household expenses that everyday Australians face each year, so to learn these insurers have allegedly been taking advantage of loyal customers in such a way, we say, is unlawful.” 

IAG says subsidiaries Insurance Australia Ltd (IAL) and Insurance Manufacturers of Australia (IMA) “maintain they have delivered on loyalty promises made to customers and do not agree that they have misled customers about the extent of the discounts they would receive”. 

“IAL and IMA intend to defend the proceedings commenced by Slater and Gordon,” the company said. 

RACV, SGIO and SGIC provided the home and contents policies to customers in Victoria, WA and SA respectively, while Slater and Gordon is also investigating another class action around similar issues at NRMA Insurance, which operates in all states except Victoria. 

ASIC’s Federal Court action relates to SGIO- and SGIC-branded policies issued from August 25 2017 to January 29 2023 and RACV-branded policies from August 25 2017 to August 24 2023. A case management hearing is scheduled for October 3. 

The regulator identified pricing promises in the general insurance sector as one of its enforcement priorities last year after a review found companies did not have adequate systems and checks in place to make sure promises made to customers were met. 

The Federal Court last June penalised IAG $40 million for failing to honour discount promises made to customers who held NRMA-branded motor, home, boat and caravan policies, with a price “cupping mechanism” involved in that case. 

The court in November ordered RACQ to pay a $10 million penalty for potentially misleading customers in product disclosure statements about discounts available for certain types of cover. 

An ASIC report last June said it was estimated insurers were remediating more than $815 million to more than 5.6 million consumers, involving more than 6.5 million policies, for pricing failures identified and reported to the regulator since January 2018.