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Insurers to repay $815 million after overcharging consumers
By Millie Muroi
More than 5.6 million consumers are on track to receive $815 million in compensation after the corporate regulator uncovered pricing failures by 11 general insurers that led to clients being overcharged for their insurance.
In a report released on Friday, the Australian Securities and Investments Commission (ASIC) said more than 6.5 million insurance policies had been affected across breaches reported between January 2018 and October 2021.
ASIC Deputy Chair Karen Chester said about half of the remediation payments had been made to customers so far.Credit: Alex Ellinghausen
ASIC deputy chair Karen Chester said breach reports during that period included those relating to misconduct well before 2018 and that the $815 million figure was a “pure remediation number,” that excluded additional costs insurers were expected to face to process the payments and fix their processes.
“All of the $815 million will go straight back to customers,” Chester said. “The additional cost to the insurers will be tens of millions more invested in the ‘fix’, along with the reputational cost and loss in consumer trust.”
Failures by insurers included pricing floors that led to some customers not receiving promised discounts such as loyalty discounts in full, disclosures documents and promotional materials containing inaccurate descriptions of discounts, incorrectly applied eligibility criteria for price discounts, errors in pricing systems and poor business practises.
These breaches were across a range of insurance policies but most common for motor vehicle and home insurance, according to ASIC.
Chester said about half of the remediation had so far been paid out, with one or two insurers ahead of the pack, and that it was now up to company boards to ensure insurers were doing the right thing.
“It’s a line in the sand point,” Chester said. “It’s now up to boards to ensure the remediation is paid, and that processes are fixed. We’re not monitoring remediation any longer. Going forward companies are on notice that if they fall short on remediation we will take compliance or enforcement action.”
However, Chester said there were some proceedings and investigations still underway and that ASIC would take a closer look at other pricing practices such as loyalty taxes.
In October 2021, ASIC called on all general insurers to review their pricing practices, systems and controls to ensure consumers received the full discounts they were promised.
Later that month, the regulator wrote to 11 insurers representing 68 per cent of the general insurance market in Australia, requiring them to comprehensively review any inconsistency or possible inconsistency between the pricing promises made to consumers and the promises delivered, and to find, fix, repay and report any pricing failures.
The reviews identified substantial failures to deliver on promised price discounts, benefits and rewards.
ASIC said there had been ongoing underinvestment in systems, processes and data, and that pricing misconduct risks had been worsened by too much complexity in promise design and delivery.
The regulator first put general insurers on notice of pricing misconduct risks through a public announcement in 2013, published a report in 2015 and issued a further public reminder in 2017.
Chester said it was “beyond disappointing” that it had taken insurers years to act after being given direction to review their processes and that the regulator would enforce the law if firms did not comply.
“It’s not ASIC’s job to hold insurers’ hands on the remediation process,” Chester said.
“But if we learn through targeted surveillance that the remediation hasn’t met obligations, we will investigate and potentially take enforcement action.”
ASIC has commenced civil penalty proceedings against Insurance Australia Limited and RACQ Insurance Limited for misleading consumers and failing to honour promised discounts, and have commenced other investigations into general insurers.
The regulator said general insurers were fixing failures and improving processes and product governance.
“Some insurers have issued revised disclosure documents, several are reviewing existing products and discounts to simplify them, and others are undertaking risk transformation plans,” it said.
An IAG spokesperson said almost all of the company’s refunds had been issued to customers who were impacted by issues identified in its remediation program.“The remainder of the remediation is on track to be sent over the next couple of months,” the spokesperson said.
“We regret these failures, we appreciate their significance, and we’ve apologised to those customers impacted.”
Since October 2021, participating general insurers have notified ASIC of more than 600 additional reportable situations involving potential or suspected pricing failure.
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