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IAG accused of inflating premiums for 'millions' of loyal customers: 'Really disapponting'

A class action lawsuit has been launched against Insurance Australia Group over claims customers had to pay more if they were more likely to stay.

A class action lawsuit has been launched against Australia's biggest insurance company. Insurance Australia Group (IAG) has been accused of using pricing strategies to increase the premiums of millions of loyal customers.

The brands allegedly involved include the Royal Automobile Club of Victoria (RACV), the State Government Insurance Office (SGIO) in Western Australia, and the State Government Insurance Commission (SGIC) in South Australia. Slater and Gordon claim affected customers were misled about their home and contents policies for up to six years.

“We’re alleging that millions of Australians paid premiums year-on-year to these IAG insurers on the promise that they were getting a discount,” Slater and Gordon's Ben Hardwick said.

Insurance Australia Group Limited (IAG) logo
Insurance Australia Group Limited (IAG) has been accused of misconduct in how it treated some loyal customers. (Source: Getty)

Do you have a story? Email stew.perrie@yahooinc.com

“But in reality, because of this pricing algorithm they were using, new customers were typically paying less for their policies than loyal customers who had been with them for more than 20 years.

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“The higher the computer program identified a customer’s perceived price elasticity, the lower the annual premium increases the customer would receive, so loyal customers who were assessed as having low price elasticity and were unlikely to leave, faced steeper increases to their premiums.”

IAG is accused of employing a computer algorithm to identify people who were less likely to leave the company and switch to another provider. That system then allegedly inflated premiums, which was called a "loyalty uplift", for these customers, even though they were told they were getting loyalty discounts if they renewed their policies.

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The increased cost for customers was allegedly solely based on their likelihood of leaving IAG and wasn't related to their risk profile or the service they were paying for.

"This meant that some customers, including long-term customers, may have unknowingly paid more in higher base premiums," Slate and Gordon claimed.

"Customers were not made aware that these hidden fee increases would reduce the impact of the loyalty discounts that they had been promised by insurers as a reward for their loyalty as customers.

"We consider that this conduct may amount to misleading and deceptive conduct and/or unconscionable conduct, in breach of the ASIC Act."

RACV customer and lead plaintiff 56-year-old Angela Williams was shocked at the allegations.

“I thought I was getting a good deal. If I had known that RACV was actually charging me a higher base premium because of a pricing algorithm, I would have switched right away,” she said.

“I thought they were trustworthy, so it’s really disappointing to hear that they’ve basically been taking advantage of loyal customers in order to make a quick buck."

Slater and Gordon stated the alleged misconduct ran from May 27, 2018 to May 27, 2024 and applied to RACV, SGIO and SGIC customers.

If you renewed your home and/or contents insurance policy during that time then you could be included in the class action.

Policyholders don't need to do anything at this stage, however, if they want to be kept up to date then they can register here.

Slate and Gordon said people would not be exposed to any out-of-pocket costs or adverse cost orders as a result of registering their interest.

The class action has specifically been launched against Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia (IMA), which are both subsidiaries of IAG.

IAG told Yahoo Finance it is "dedicated" to providing the "best possible service and support" to its customers.

"The Class Action relates to the allegations in the ASIC legal proceedings filed in August last year about SGIO, SGIC and RACV home insurance products. We are defending those proceedings," a spokesperson said.

"We maintain we have delivered on loyalty promises made to customers and will also defend this Class Action. Our priority now, as always, is to continue to deliver for our customers.”

- with NCA Newswire

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