Financial services regulator ASIC is pursuing civil action against QBE Insurance Australia alleging the firm misled customers about the value of discounts offered on a number of its general insurance products.
ASIC alleges that between July 2017 and September 2022, QBE “made statements and sent renewal notices promising discounts on premiums for a range of general insurance products, including home, contents and car insurance”.
The discounts were offered through the distribution of more than 500,000 renewal notices. The notices were received by a range of QBE customers, including retirees, loyalty customers, company shareholders, those holding multiple QBE policies, and those holding QBE policies and who had made no claims, with promises of substantial premium reductions – up to 60 per cent in some cases – if policies were renewed.
ASIC deputy chair Sarah Court said the discounts ended up either significantly smaller than initially promised or “eroded… to nil” due to QBE’s pricing model.
The misapplied discounts were the result of two pricing mechanisms used by the insurer to calculate premiums, which according to ASIC had imposed limits on such discounts.
These pricing mechanisms included:
- a minimum premium mechanism – an adjustment made to the premium to ensure it was at or above the lowest retail premium (in dollar terms) that QBE was prepared to accept from a customer to insure a particular risk; and
- a cupping, or ‘collaring’ mechanism. This involved the application of a pricing algorithm at the renewal of an insurance policy to limit the extent of any reduction (in percentage terms) in the premium compared to the expiring premium.
QBE, ASIC alleges, did not disclose to customers during the more than five-year period in question of the existence of minimum premiums or price reduction limits imposed by the pricing algorithm.
“We say that QBE knew that some of these pricing mechanisms were applying, so that consumers were not getting the full discounts promised,” Court said during a press briefing.
ASIC acknowledged that QBE self-reported the issue to it in October 2022. QBE added that it undertook a remediation program to compensate affected customers, which it announced to the ASX on 19 July 2022.
QBE’s half-year results from that year recorded a $75 million outlay for this remediation program.
As part of its remediation program, QBE informed affected customers by mail, conceding that it “incorrectly stated the total savings amount on some policy schedules… and didn’t provide enough information about when our pricing policies were limited or didn’t apply”.
In a statement to the Australian Securities Exchange (ASX) issued on 23 October, QBE apologised for the inconsistencies, saying it would “review the pleadings and continue to work with ASIC on these matters”.
Commenting on the nearly two-year gap between the self-reporting and the regulator’s legal action, Court said that ASIC used this time to “[make] sure that what was reported to us [by QBE] was the full extent of the conduct”.
“We’ve been engaging with QBE issuing notices, doing our normal investigatory processes and that’s why this is going to court today.”
ASIC confirmed is seeking civil penalties, declarations and adverse publicity orders from the civil action, alleging multiple breaches of section 12 of the ASIC Act.
Court stressed that the regulator would continue to prioritise crackdowns on insurers that fail to deliver on pricing promises, highlighting recent action against IAG subsidiaries in 2021 and 2023 for unmet loyalty discounts.
“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.”