IAG missed insurance discount warnings for years
Insurance giant IAG’s staff raised doubts internally about a discounting algorithm six years before the board heard of the problems that the business was having in pricing premiums, which have since cost it more than $500 million.
“This seems inconsistent with our customer-focused strategy,” one technology worker wrote in an email about IAG’s approach to reducing a customer’s “effective discount”.
The flaw, which short-changed customers for years because of an undisclosed floor-pricing mechanism, also cost IAG the sector’s biggest-ever fine following a $40 million penalty ruling last week.
The fallout has also claimed the role of a director in IAG’s New Zealand subsidiary, The Australian Financial Review can reveal.
IAG’s former head of personal insurance, Andy Cornish, resigned from that board over the weekend. Mr Cornish had been in the executive role when the “cupping” floor-price algorithm was introduced, and although he had since left that position, he had been a director of IAG’s subsidiary.
IAG had maintained in court that there was no evidence that senior managers knew of any failure to disclose the impact on discounts to customers, but Justice Wendy Abraham said this “submission ignores that the senior staff that were involved in implementing the cupping mechanism ought to have known what was occurring”.
Sydney-based IAG, whose brands include CGU and NRMA, confirmed that Mr Cornish had resigned “following the Federal Court judgment”. He could not be reached for comment,
Federal Court Justice Wendy Abraham.
These initial missed discounts affected almost 611,000 customers purchasing NRMA cover for homes, cars, boats and caravans. The case centred on IAG’s failure to disclose that an algorithm had changed
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