This sly algorithm is allegedly targeting loyal insurance clients

afr.com:

Four mainstream Australian insurers say they avoid deliberately inflating premiums for customers predicted to be more likely to tolerate higher price renewals, contrasting with allegations levelled against major provider IAG.

But a couple of insurers, including major operator Suncorp, refuse to clarify whether they use such an algorithm in their premium setting.

IAG is defending new claims from ASIC about the way an algorithm allegedly priced premiums.  

The use of such a deliberate price-inflating technique was an allegation levelled by the Australian Securities and Investments Commission against IAG in a Federal Court civil lawsuit last week.

IAG, whose brands in the firing line include SGIO and RACV, is defending the legal action, which focuses on the impact on discount pledges. In comments to The Australian Financial Review, it added: “We don’t agree with how ASIC has characterised the process by which we calculate renewal premiums, and the impact on our customers.” It declined to go into detail.

ASIC’s lawsuit claimed Sydney-based IAG, which notched an $832 million full-year profit, had a “renewal optimisation process”.

That included a demand model predicting “each customer’s likelihood to renew their policies at different premiums based on factors that [its subsidiaries] considered to be the most statistically significant”.

The model is alleged to have “had the purpose of allocating a smaller relative price increase to the policies that were predicted to be less likely to renew at higher prices; and a larger relative price increase to the policies that were predicted to be more likely to renew at higher prices”.

Several insurance sources were aware of such a premium adjustment capability, saying it had been