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‘Misleading’: Insurance companies under fire

Court Stock
The class action has been filed to Victoria’s Supreme Court. Picture: NCA NewsWire / Penny Stephens

Insurers operating under parent company Insurance Australia Group and Insurance Manufacturers of Australia are facing a class action, having been accused of misleading and deceptive conduct against millions of customers.

The class action has been filed by law firm Slater and Gordon on behalf of millions of SGIO, RACV and SGIC customers.

The three insurers are accused of participating in deceptive, misleading and unconscionable conduct by telling customers they were getting loyalty discounts upon renewal, but instead charged artificially higher base premium.

It is alleged customers who held insurance polices with these companies were told their discounts were calculated based on the number of years with the insurer and/or whether they had other insurance policies with the same brand, such as car insurance.

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This was done through a computer pricing algorithm, where insurers were allegedly using it to identify the probability of customers staying loyal to the same brand if their insurance prices increased.

This was compared to policyholders who were more likely to look for cheaper alternatives with other insurers.

Slater and Gordon class actions practice group leader Ben Hardwick said this algorithm was essentially punishing loyal customers by increasing their prices over new ones.

COST of LIVING
The current high cost of living has forced households to try and save where they can on bills like insurance, electricity and groceries. Picture: NewsWire / Emma Brasier

“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,” Mr Hadwick said.

“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.

“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.”

Mr Hadwick alleged customers were denied the chance to find better deals or make informed decisions about their insurance policies as they weren’t given all relevant information.

“The reality is that they are likely to have received cheaper insurance from these brands had their loyalty not been a factor in their renewal calculations at all,” he said.

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

The class action’s aim is to win compensation to customers affected, for loss and damages suffered by IAG’s conduct.

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.

HOUSING GENERICS
It’s alleged that loyal customer with home and car insurance policies under these companies were being charged higher rates. Picture: NewsWire / Max Mason-Hubers

Despite being a loyal customer for more than 20 years, Ms Williams is disappointed by their alleged conduct.

“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,” she said.

Other leading plaintiff, 64-year-old Debra Dawson, was with SGIO for 16 years and only stayed with them because she was under the impression that she was getting a loyalty discount.

“I thought that the discount was an advantage I couldn’t get with another insurer. That’s why I never sought to renew my policy with another insurer,” Ms Dawson said.

RACV, SGIC and SGIO offer insurance to customers in Western Australia, South Australia and Victoria.

A spokesman for IAG told NewsWire they would be “defending those proceedings”.

“We are dedicated to providing the best possible service and support for our customers. The class action announced today relates to the allegations in the ASIC legal proceedings filed in August last year about SGIO, SGIC and RACV home insurance products,” they 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.”