IAG deliberately pumped up premiums for sticky customers: ASIC

afr.com:

IAG installed an algorithm that deliberately inflated premium calculations for customers perceived as more likely to stay with the insurance giant, a new regulatory lawsuit alleges.

Customers predicted to be more likely to switch elsewhere had lower calculations, the Australian Securities and Investments Commission claimed in a Federal Court action unveiled on Friday.

Sarah Court of ASIC.  Edwina Pickles

This cut into some loyalty discounts on offer and amounted to misleading the home insurance customers, ASIC said.

While IAG has admitted to breaches previously in other discounting matters, on Friday the insurer, one of Australia’s biggest with brands including NRMA and CGU, said it would fight this action.

“[IAG subsidiaries] maintain they have delivered on loyalty promises made to customers, do not agree that they have misled customers about the extent of the discounts they would receive, and intend to defend the proceedings,” the company told investors.

The lawsuit marks the latest problem about discounts for the insurance industry, and casts another spotlight on risk management at IAG.

Only in June, IAG was slapped with a $40 million fine – the biggest ever for industry – following admissions of misleading and deceptive conduct with another algorithm. That latter algorithm had deliberately put a floor on how low a discount could go for a customer, but customers were not told about it.

With the latest case, ASIC states that IAG subsidiaries between January 2017 and December renewed over 1 million home insurance policies for brands including SGIO, SGIC and RACV.

“We allege that IAG subsidiaries … misled their customers about the extent of the discounts they would receive. The way they operated their pricing algorithm