RACQ admits to missed chances in $240m discount snafu
Insurer RACQ could have picked up a discounting glitch as early as 2012, nine years before it morphed into a $240 million blowout when it was eventually discovered.
Court documents obtained by The Australian Financial Review contain the admission from Brisbane-based RACQ, marking the latest example of how insurers missed problems brewing internally, culminating in costly errors.
Missed discounts has resulted in more than $800m in insurer remediation. Louie Douvis
Insurers failing to pass on promised discounts has led to remediation expenses exceeding $815 million across the industry.
It has also cost more in terms of reviews, with Sydney-based IAG chalking up gross provisions of more than $500 million relating to discount snafus. IAG’s problems included it having missed internal staff warnings six years before such issues were elevated to the board, although it cannot explain why that happened.
Customer-owned RACQ turns over $1.1 billion in premiums covering cars and homes, and mid-last year revealed to members its problem with discounts, setting aside $238 million in related provisions.
It was sued by the Australian Securities and Investments Commission and an agreed statement of facts describes the problem being due to the order in which discounts were calculated.
RACQ had in 2010 inherited a pricing engine from its disbanded joint venture with Suncorp, which used algorithms for calculating premiums.
But sometimes discounts were formulated on base products only, excluding some optional cover, such as for hire cars. The problem was RACQ never disclosed this to buyers, sparking a lawsuit about misleading representations.
The insurer admitted in court documents it had broken the ASIC Act by engaging in conduct liable to
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