IAG fined $40m for failing to give customers due discounts
Insurance Australia Group has been fined $40 million for failing to pass on discounts to its policyholders, the largest such penalty in the sector.
The fine was the outcome of legal action which also revealed staff within IAG, one of Australia’s biggest general insurers, had been aware of a problem with an internal mechanism to minimise discounts for years.
IAG was hit with a $40 million penalty.
Federal Court judge Wendy Abraham, in handing down the fine for the failure which affected almost 611,000 of the insurer’s customers, said on Friday: “It carries a sufficient sting to ensure that the parties or others do not regard the penalty amount as an acceptable cost of doing business.”
The total discounts not given came to $60.2 million between 2014 and 2019, but the statute of limitations meant the court could only account for $35.4 million.
Justice Abraham said the contraventions were “very serious”. The issue was centred on IAG’s failure to disclose to consumers receiving renewal notices that advertised discounts had been changed by an algorithm that imposed a limit on the maximum permitted decrease given to a customer.
It effectively meant when a premium fell by more than what the algorithm allowed, the customers’ base premium was “recalculated and increased” so after discounts would fall within the required range. But customers were not informed of this in their renewal certificates.
IAG admitted this amounted to misleading conduct.
The Australian Securities and Investments Commission, which has been scathing of systemic failures by insurers to pass on discounts, said the penalty was the largest ever sought against an insurer.
“This sends a strong message of deterrence to the industry. Insurers need to put their
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