The Australian Securities and Investments Commission (ASIC) has initiated Federal Court proceedings against QBE Insurance, alleging the company misled customers about the value of discounts offered on certain general insurance products.

The accusations, lodged on 22 October 2024, refer to a period between July 2017 and September 2022, where QBE made statements and sent renewal notices promising discounts on premiums for a range of general insurance products, including home, contents and car insurance, both commercial and private.

The discounts were offered through more than 500,000 renewal notices to retirees, loyalty customers, QBE shareholders, those holding multiple QBE policies, and those holding QBE policies and who had made no claims. Statements offering pricing discounts were also made in various product disclosure statements published on QBE's website.

The insurance company had reportedly applied two relevant pricing mechanisms during this period: A minimum premium mechanism, which was an adjustment made to the premium to ensure it was at or above the lowest retail premium in dollars; and a ‘cupping mechanism’ which involved applying a pricing algorithm at renewal of an insurance policy to limit the extent of any reduction in the premium compared to the expiring premium.

“ASIC alleges QBE's pricing model potentially eroded the discounts received by over half a million customers, in some cases to nil,” ASIC Deputy Chair Sarah Court said. In its concise statement, ASIC said this was because QBE sent to many customers Renewal Notices that incorrectly represented that the premium they were being charged to renew their policy had been reduced on account of specified Discounts when, in fact, one or both of the Pricing Mechanisms had operated to reduce or eliminate the benefit of some or all of the specified Discounts and their premium had not been reduced in the manner or to the extent represented.

“Some customers were promised discounts for their loyalty when renewing their policies, which they didn't receive,” Court continued. “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. 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.”

ASIC alleges many customers did not receive the full value or benefit of discounts on premiums which they ought to have received or which they were led to believe they would receive. As a result, these customers paid premiums that were greater than the premiums they would have paid had they been calculated in accordance with the statements and representations made by QBE.

In addition, in its concise statement, ASIC alleges harm occurred to customers who purchased insurance products because they were also denied the opportunity to make properly informed decisions about whether to do so and on what terms, and may have formed mistaken views about the value or suitability of those products.

“This may have induced customers to act differently than they otherwise would have acted on the basis of mistaken beliefs about the value of any discounts to which they were entitled, e.g. purchasing a complementary insurance product from QBE (rather than a competitor) in order to qualify for the Multi-Policy Discount; agreeing to pay a higher excess in order to qualify for the Higher Excess Discount; and renewing a QBE policy (rather than moving to a competitor) in order to qualify for the Loyalty Discount,” the statement reads.

The court proceedings have been filed in the Federal Court. ASIC is seeking civil penalties, declarations and adverse publicity orders. QBE self-reported the failures to ASIC in October 2022.

Action against QBE is the latest in a series of court proceedings lodged by the corporate regulator against insurance groups. ASIC also announced in August last year that it was pursuing IAG-subsidiaries, Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia Pty Limited (IMA), for allegedly misleading customers about the loyalty discounts available for certain types of home insurance.

ASIC also brought action against IAG in October 2021, alleging it misled customers regarding loyalty discounts available for certain types of home insurance including NRMA branded insurance, action that saw IAG penalised $40 million over pricing discount failures in June 2023. Separately, ASIC initiated proceedings against RACQ for pricing discount failures, and secured a $10 million penalty for those efforts.

In June 2023, ASIC released Report 765, ‘When the price is not right: Making good on insurance pricing promises’. As a result of ASIC's work, general insurers were, at the time the report was issued, remediating over $815 million to more than 5.6 million customers for pricing failures reported to ASIC since 1 January 2018.