The $500m debacle: How insurer IAG missed risk warnings
Top finance veterans, including current Commonwealth Bank director Peter Harmer, declared for years insurer IAG had sound risk-management systems while regulatory debacles costing $500 million ticked away internally.
Other figures, including current Medibank Private chairman Mike Wilkins and current IAG chief executive Nick Hawkins, were also listed as having risk-management responsibilities inside the major Australian insurer as problems erupted.
Mike Wilkins, Peter Harmer and Nick Hawkins of IAG.
The problems stemmed from IAG failing to pass on discounts to customers – an issue staff had raised concerns about internally six years before the practice was stopped and board notified.
The discounting debacle triggeredAustralia’s biggest fine against an insurer in June following Australian Securities and Investments Commission action. IAG, one of Australia’s biggest insurers with brands including NRMA and CGU, admitted in that $40 million action to having engaged in misleading and deceptive conduct.
It stemmed from work IAG started in 2013 on an algorithm that minimised premium falls or rises when policies were renewed, which industry calls “cupping” and “capping”.
Customers were not told, although this omission was not alleged to be deliberate. It meant no-claims or loyalty bonuses were quietly curtailed for 705,000 policies until IAG removed the algorithm in 2019.
Combined with other pricing problems that snowballed after the first discounting debacle, gross costs including remediation have exceeded $500 million.
Elizabeth Sheedy. Louie Douvis
The Australian Financial Review can reveal the oversight connections after reviewing corporate and court filings, freedom of information documents and interviews with insurers,
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