Victorian, SA and WA homeowners join IAG class action over ‘deceptive’ loyalty discounts on premium renewals

Homeowners across Australia are set to join a class action against IAG over allegations of misleading and deceptive conduct that penalised unsuspecting customers for their loyalty.

The suit has been filed by Slater and Gordon against the insurance giant’s subsidiaries Insurance Australia Limited and Insurance Manufacturers of Australia on behalf of RACV, SGIO and SGIC policyholders in Victoria, South Australia and WA.

It centres on how loyalty discounts were calculated and promoted and covers those customers who renewed their home and/or contents cover between May 27, 2018 and May 27 this year.

IAG in a statement to the Australian Securities Exchange on Wednesday said it intends to defend the action.

In its claim filed to the Victorian Supreme Court, Slater and Gordon allege IAL and IMA told more than one million customers they received discounts based on how many years they stayed with the insurer or the number of policies they held. But they may have been paying a higher base premium in the first place.

Class action lead at the firm Ben Hardwick said a computer program was used to identify which customers were likely to shop around if their policies increased and which would stay loyal to their insurer.

“What hasn’t been disclosed to customers is that in the backroom is a computer algorithm constantly beavering away to ascertain who is the most sticky of customers,” he said.

“Customers who are judged to be sticky are loyal, have had their base premiums ramped up with the effect that the loyalty discount was effectively worthless.”

Slater and Gordon claimed the behaviour amounted to misleading, deceptive and unconscionable conduct, and breached financial services laws.

In a statement provided by the law firm, lead plaintiff Angela Williams said she was shocked to find out about the allegations.

The 56-year-old had home and contents insurance with RACV for more than two decades.

“I thought I was getting a good deal,” Ms Williams said. “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.”

The class action stems from civil proceedings launched last August by the Australian Securities and Investments Commission — covering more than one million home insurance policies — alleging IAL and IMA misled customers about the loyalty discounts available for certain types of home insurance.

The watchdog claimed loyalty discounts encouraging customers to renew their home insurance policies were misleading as loyal customers may have had their premiums increased before the discounts were applied.

“The way they operated their pricing algorithm meant that some longer term or more loyal customers were allocated, or may have been allocated, higher premiums before the promised discounts were applied,” ASIC deputy chair Sarah Court said at the time.

“There is a risk that loyal customers, having been promised a discount, were persuaded to stay with these companies, and in doing so lost their opportunity to shop around for a better price.

“‘Where insurers make discount promises to renewing members they need to have robust systems and controls in place, especially where complex pricing systems and algorithms are used, so they can be sure they are delivering on these promises.”

IAG in its statement to the ASX maintained IAL and IMA had delivered on loyalty promises made to customers and do not agree that they have misled customers about the extent of the discounts they would receive.