Regulator slams insurers for failing to address pricing failures

ASIC raised this concern in a review of insurers, which unveiled an alarming trend of ongoing pricing failures resulting in insurers withholding approximately $815 million in promised savings from customers.

“This systemic failure by insurers to deliver on their pricing promises has seen more than 5.6 million consumers overcharged $815 million for their insurance,” said ASIC deputy chair Karen Chester.

Preceding the report in October 2021, the regulator intervened by directing 11 general insurers to conduct thorough reviews, aiming to identify, rectify, report, and reimburse their failures. These comprehensive reviews encompassed 2,000 price promises across over 500 general insurance products and 50 different brands.

What the review unearthed is a small number of cases where, at an earlier date, insurers identified pricing failures that were likely occurring but decided to take no or minimal action at that time, including not remediating consumers. This, the regulator said, meant potential pricing failures were not thoroughly investigated or adequately addressed.

In addition, ASIC initiated civil penalty proceedings against Insurance Australia in 2021 alleging that the insurer engaged in “misleading or deceptive conduct” between March 2014 and November 2019 by telling some NRMA Insurance customers that they were eligible for certain discounts that they failed to receive.

The corporate regulator said at the time that the discount promises totalled around $60 million.

Similarly, in February this year, ASIC announced it was suing RACQ over equal concerns of alleged pricing discount failures.

While these cases have taken the spotlight, ASIC confirmed on Friday it is conducting ongoing investigations into similar matters.

Ms Chester explained that the regulator’s new report reveals three main causes for the systemic pricing failures.

“First, unnecessary complexity in pricing promises and pricing practices – accounting for the lion’s share (at least $379 million) of the remediation. Second, persistent underinvestment in systems, controls, and data. Third, and perhaps the most disappointing, insurers’ inaction despite being on notice for years about these pricing risks,” she said.

The deputy chair added it’s “beyond disappointing” that despite past ASIC warnings and action, it took further direction in late 2021 for general insurers to comprehensively find, fix, and repay their customers for these broken promises.

“Earlier action by insurers would have avoided much of the consumer harm we now see, with $815 million in remediation,” said Ms Chester.

“It’s now up to the boards of general insurers to ensure the prompt and full repayment of the $815 million owed to their 5.6 million customers, implement the fixes needed and rebuild consumer trust,” added Ms Chester.

Loyalty taxes

The corporate regulator also highlighted concerns regarding misleading loyalty promises and the potential for loyalty discounts to be reduced or offset by a practice known as “loyalty tax”.

Loyalty taxes involve charging higher premiums to renewing customers who are less likely to shop around for better insurance deals. Factors such as price elasticity, postcode, or income may be considered when applying loyalty taxes.

Once again, ASIC flagged the possibility that insurers are making representations about rewarding loyal consumers without providing the full benefit of promised discounts.

These practices, it said, “would not meet community expectations”.