The Federal Court has penalised RACQ Insurance $10 million for pricing failures that affected more than 458,000 policyholders, causing them to miss out on some $86.47 million in combined premium discounts they should have received.

RACQ Insurance was also ordered to pay ASIC’s cost of the court proceedings and post a Federal Court notice on its website.

The court decision today comes after the Australian Securities and Investments Commission (ASIC) sued the insurer earlier this year, accusing it of misleading customers who had bought Motor, Home, Caravan & Trailer and Unique Vehicle insurance policies.

The court ruled the insurer sent out misleading product disclosure statements (PDSs) on at least five million occasions between March 2017 and March last year about the pricing discounts that were available for certain types of cover.

It was found the PDSs were potentially misleading because the discounts were only applied by RACQ Insurance to the base insurance premium, not to additional premiums paid for certain optional extras such as Excess Free Windscreen, Hire Car and Increased Caravan Contents.

“Consumers need to be able to rely on the pricing promises made to them by insurers, and insurers need to make sure that they pass on those promises in full,” ASIC Deputy Chair Sarah Court said today in a statement.

“ASIC identified pricing promises in insurance as an enforcement priority this year, and will continue to monitor marketing and pricing practices in the industry, and use the full range of regulatory tools available to protect consumers from general insurers failing to honour promised discounts.”

She says the “significant penalty” handed down today sends a “clear message to the insurance industry that failures in pricing practices will not be tolerated”.

ASIC launched the court proceedings after RACQ Insurance self-identified and self-reported the matter to the corporate regulator.

“Although RACQ had no intention to mislead, it recognises and admits the historical controls it had in place to ensure its PDSs complied with the laws were inadequate,” the business said today.

“RACQ is simplifying its insurance products and the discounts that it offers members and improving its systems and processes to reduce complexity to ensure this never happens again.”

The business says it has processed more than $54 million to date in refunds to eligible policyholders and expects to complete the financial redress by the end of next February.

The insurer, a subsidiary of motoring mutual club The Royal Automobile Club of Queensland, says it had anticipated a penalty in the order of the amount imposed by the court and provisioned for this in its FY23 accounts.

ASIC’s crackdown on pricing failures has also led to Federal Court proceedings against IAG, which was penalised $40 million in June for failing to honour discount promises made to its NRMA insurance customers.

The $40 million penalty is the largest ever penalty imposed by the Court against an insurer for breaches of the financial services consumer protection laws.