Two major Australian home and contents insurers are in the firing line of a potential class action lawsuit after allegedly levelling a “loyalty tax” on customers.
Slater and Gordon announced on Thursday it was investigating potential class actions against Insurance Australia Limited and Insurance Manufacturers of Australia.
The potential legal actions against IAL and IMA are being levelled on behalf of hundreds of thousands of RACV, SGIO, and SGIC policyholders allegedly misled by the insurers.
The allegations stem from a so-called “loyalty tax” allegedly levelled on policy holders without their knowledge as a way of offsetting loyalty discounts promised by IMA and IAL.
Slater and Gordon class actions associate Henry Hamilton-Lindsay alleged that an algorithm was used to determine which customers were least likely to change insurer in response to increased premiums.
“IAL and IMA used an algorithm to determine who was most likely to renew their policy and took steps to increase those customers’ base premiums, despite them often being long-term customers,” Mr Hamilton-Lindsay said.
“We believe that there may be hundreds of thousands of Australians who thought they were receiving discounts by remaining loyal IAL and IMA home insurance customers.
“But, in reality, they were being charged hundreds of dollars more each year as a result of that loyalty. We believe that money belongs in the pockets of everyday Australians, particularly given the rising cost of living.”
IAL and IMA are subsidiaries of the Insurance Australia Group – one of Australia’s largest insurance companies – which includes RACV, SGIO, and SGIC-branded home insurance products.
Between 2017 and 2022, IAL and IMA renewed more than one million home insurance policies, according to Slater and Gordon.
The investigation comes off the back of Slater and Gordon’s consumer credit insurance class actions against Australia’s big four banks, which settled for a combined $176 million.
Slater and Gordon have encouraged past and present IAL, IMA RACV, SGIO and SGIC customers who held a home and/or contents insurance policy to register their interest in the class action.
In a statement, IAG said it would defend separate civil penalty proceedings commenced by ASIC in the Federal Court of Australia.
“The proceedings allege contraventions of the ASIC Act and the Corporations Act concerning the pricing of, and certain disclosures about how premiums are priced, for renewing customers of SGIO, SGIC and RACV home insurance products,” a spokesperson said.
“IAL and IMA maintain they have delivered on loyalty promises made to customers, do not agree that they have misled customers about the extent of the discounts they would receive, and intend to defend the proceedings.”
