The Australian Securities Investments Commission (ASIC) has called on insurers to do better after IAG undertook to contact customers caught up in the discount controversy to advise them of a Federal Court judgment on Friday. 

The court ruling that IAG made “false and misleading” representations to customers draws a line under the drama in which IAG self-reported that policyholders, covered by NRMA Insurance home, motor, caravan, and boat policies, missed out on promised loyalty discounts.  

IAG was fined $40 million plus costs for the failures, which affected around 600,000 customers. Most policyholders have been refunded by IAG subsidiary Insurance Australia Limited (IAL). 

The court also ordered that for 90 days an “adverse publicity order” be included on the NRMA Insurance website.  

IAG says in a statement that it acknowledges the decision to impose a civil penalty for contraventions of the ASIC Act and Corporations Act.  

“IAG has apologised for this failure, recognised its significance and that this was unacceptable. IAG’s focus has been on putting this right for its customers, as quickly as possible. Refunds have been issued to all customers impacted by this failure,” the statement says. 

IAG says it has worked with ASIC and on a broader price review and remediation program to provide refunds to customers caught up the pricing failure between March 2014 and November 2019. 

“IAG has issued refunds to 99% of impacted customers, with the remaining refunds expected to be issued over the next two months,” the insurer says. 

“The $186 million customer refund provision that IAG reported in its financial statements to 31 December 2022 is sufficient to provide for the penalty amount. “ 

ASIC says the penalty is the largest imposed by a court against an insurer for breaches of the financial services consumer protection laws. 

“Pricing failures are unfortunately an industry-wide issue. ASIC has called on all general insurers to remove unnecessary pricing complexity and fix their systems, practices, and controls to ensure they deliver on the pricing promises they make to their customers,” ASIC Deputy Chair Sarah Court said. 

IAL used a pricing algorithm that limited the discounts renewing customers could receive, ensuring their premiums did not fall below a certain price point. This meant promised discounts weren’t passed on. 

In the judgment, Justice Abraham said: “It is important to recognise that deterrence is the primary consideration, and as such, it is necessary to impose a penalty of sufficient size to act as a strong deterrent to ensure IAL and others do not treat the risk of non-compliance as a mere cost of doing business.”