In recent years, insurance companies in Australia have come under scrutiny for numerous failings in their processes and pricing models, prompting a call from the corporate watchdog. According to the Australian Securities and Investments Commission (ASIC), eleven insurers have now been ordered to refund customers to the tune of $815m for their inadequacies.
The investigation found that the companies were pricing their policies in reckless and unnecessarily complex ways. They failed to have appropriate governance systems in place to deliver on the prices promised and couldn’t adequately monitor and control their distributors. These failings have led to millions of customers being overcharged and entitled to a refund.
General insurers were found to lack the necessary product governance, systems, data, and controls to fulfill their pricing guarantees, and were unable to monitor and govern the pricing pledges made by their distributors.
The report revealed that insurers had confused their pricing promises and procedures, with this complicated pricing being held responsible for a minimum of $379 million of the $815 million that customers were overcharged.
Of all companies, Insurance Australia Group Limited (IAG), encompassing Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia (IMA) — managing brands such as NRMA, Coles, and Swan — proved to be the biggest offenders, with customers owed a total of $447.2m on 4,252,000 policies.
Karen Chester, the ASIC deputy chair, identified the issue as a “systematic failure” and declared that it is now the responsibility of the general insurers’ boards to ensure the quick and complete re-payment.
“The boards of general insurers must now take responsibility for guaranteeing that all 5.6 million customers receive their $815 million payments in a timely manner, make the necessary corrections, and win back the trust of the consumers,” she said.
In October 2021, ASIC issued a directive to 11 insurers to review and address pricing discrepancies across 500 general insurance products, 50 different brands, including AAMI, Youi, Allianz, Medibank, and Suncorp, with an estimated total of 2000 price deals.
