SGIO, RACV, SGIC: Insurance companies facing class action

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Class action lawsuits are pending against the insurers of the parent companies Insurance Australia Group and Insurance Manufacturers of Australia, alleging misleading and deceptive conduct towards millions of customers.

The class action lawsuit was brought by law firm Slater and Gordon on behalf of millions of SGIO, RACV and SGIC customers.

The three insurers are accused of fraudulent, misleading and immoral conduct by tricking customers into believing that they would receive loyalty discounts when renewing their contracts, while in reality charging them an artificially higher basic premium.

It is alleged that customers who had insurance policies with these companies were told their discounts would be calculated based on the number of years they had been with the insurer and/or whether they had other insurance policies with the same brand, such as car insurance.

This was done using a computer-based pricing algorithm that insurers allegedly used to determine the likelihood that customers would remain loyal to the same brand when their insurance prices increased.

This is in comparison to policyholders who tend to look for cheaper alternatives from other insurers.

Ben Hardwick, head of the class action practice at Slater and Gordon, said this algorithm essentially punishes loyal customers by raising prices over new customers.

“We allege that millions of Australians paid premiums to these IAG insurers year after year because they were promised a discount,” Hadwick said.

“But in reality, because of the pricing algorithm they used, new customers typically paid less for their policies than loyal customers who had been with them for over 20 years.

“The higher the computer program determined a customer’s perceived price elasticity, the lower the annual premium increases the customer received. Loyal customers who were assessed as having low price elasticity and who were unlikely to churn therefore had to expect larger premium increases.”

Mr Hadwick claimed customers were denied the chance to find better deals or make informed decisions about their insurance policies because they were not given all the relevant information.

“The reality is that they probably would have gotten cheaper insurance from these brands if their loyalty had played no role at all in calculating their renewals,” he said.

“Home and building insurance is one of the largest household expenses Australians face each year, so we believe it is unlawful for these insurers to allegedly exploit their loyal customers in this way.”

The aim of the class action lawsuit is to obtain compensation for the losses and damages suffered by the affected customers as a result of IAG’s conduct.

RACV customer and lead plaintiff Angela Williams, 56, was shocked by the allegations.

“I thought I was getting a good deal. If I had known that RACV was actually charging me a higher base premium due to a pricing algorithm, I would have switched immediately,” she said.

Although she has been a loyal customer for over 20 years, Ms. Williams is disappointed by their alleged behavior.

“I thought they were trustworthy, so it’s really disappointing to hear that they basically took advantage of their loyal customers to make a quick buck,” she said.

The other lead plaintiff, 64-year-old Debra Dawson, was with SGIO for 16 years and only stayed because she believed she was getting a loyalty discount.

“I thought the discount was a benefit I couldn’t get from another insurer, so I never tried to renew my policy with another insurer,” Ms Dawson said.

RACV, SGIC and SGIO provide insurance to customers in Western Australia, South Australia and Victoria.

An IAG spokesman told NewsWire that they would “defend these proceedings”.

“We are committed to providing the best possible service and support to our customers. The class action announced today relates to the allegations in legal proceedings against ASIC commenced in August last year concerning the SGIO, SGIC and RACV home insurance products,” they said.

“We maintain that we have kept our loyalty promises to our customers and will continue to defend ourselves against this class action lawsuit.

“Our priority, as always, is to continue to deliver for our customers.”

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