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The corporate regulator has launched civil proceedings against QBE Insurance (ASX: QBE) for allegedly misleading more than half a million customers, many of them retirees and some with multiple policies, about the value of discounts offered on its general insurance products as far back as six years ago.
The legal action is the latest by the Australian Securities and Investments Commission (ASIC) in its battle against pricing failures by the insurance industry, which in a report released last year are estimated to have cost more than 5.6 million policyholders about $815 million since January 2018.
ASIC’s Federal Court action against QBE relates to renewal notices sent to policyholders between July 2017 and September 2022 in which the insurance group promised discounts on premiums for home, contents and car insurance.
“ASIC alleges QBE’s pricing model potentially eroded the discounts received by over half a million customers, in some cases to nil,” says ASIC deputy chair Sarah Court.
“Some customers were promised discounts for their loyalty when renewing their policies, which they didn't receive.”
ASIC alleges the discounts were presented in more than 500,000 renewal notices to customers that include retirees, loyalty customers, QBE shareholders and those holding multiple QBE policies including those who had made no claims.
ASIC alleges that the pricing discounts, which were made in product disclosure statements published on QBE’s website, used a mechanism that imposed a minimum premium to ensure it was at or above the lowest retail premium that QBE was prepared to accept from a customer.
The mechanism is also alleged to have used a pricing algorithm during the policy renewal process to limit the extent of any percentage reduction in the premium compared to the expiring premium.
“The failure by insurers to deliver on pricing promises is a key priority for ASIC and we will continue to take action to hold insurers to account,” says Court.
“Where insurers make discount promises to renewing customers, they need to have robust systems and controls in place to make sure their customers receive the discounts they were promised.”
QBE has previously acknowledged “inconsistencies in the delivery of price promises made to customers with caravan, householders, marine and motor policies” during the period investigated by ASIC.
The misleading-discount issue first surfaced following a review of the insurance industry by ASIC which led to the release of its report into the industry last year.
QBE has already acknowledged its shortcomings in this matter and in July 2022 allocated a US$75 million ($112 million) provision in its FY22 interim accounts.
In a statement to the ASX this morning, QBE says that since undertaking an external review of its pricing practices in 2022, the company has taken steps to address these inconsistencies.
The company also notes that it self-reported the issue to ASIC in late 2022 and has co-operated with ASIC’s investigation which the company says “has culminated in today's development”.
“QBE apologises for the inconsistencies,” the company says in its ASX announcement.
“QBE understands the importance of meeting its promises to its customers. QBE will review the pleadings and continue to work with ASIC on these matters.”
ASIC is seeking civil penalties, declarations and adverse publicity orders from QBE from its civil action against the company.
The Federal Court action comes on the heels of ASIC ’s action lodged in August last year against IAG subsidiaries Insurance Australia Limited and Insurance Manufacturers of Australia which presents similar allegations to QBE in that they misled customers about the loyalty discounts available for home insurance products.
Insurance Australia Limited previously faced charges in 2021 of misleading loyalty discounts which led to a $40 million penalty in June last year. Pricing discount failures also cost RACQ a $10 million penalty in November last year.
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