A class action lawsuit has been filed against insurance group IAG for its alleged failure, over multiple years, to provide promised loyalty discounts to customers.

The suit, filed in Victoria’s Supreme Court, accuses several insurers within the IAG fold – namely, RACV, SGIO and SGIC – of engaging in “misleading, deceptive and unconscionable conduct”, following the alleged use of an algorithm to determine customer loyalty after an undeclared increase to their home and contents insurance premiums.

The insurers were, between 2018 and 2024, alleged to have informed customers that they were receiving loyalty discounts at the time of renewal, but instead charged an “artificially higher base premium”, effectively cancelling out the promised loyalty discount.

“It is alleged that policyholders were informed they were receiving the discounts based on the number of years they had been with the insurer and/or the number of other insurance policies they had, for example, car insurance with the same brand.”

The class action suit follows legal action pursued by corporate regulator ASIC in August last year against IAG for the same allegations of premium mispricing.

Slater and Gordon, which filed the class action suit, has blamed the unsolicited premium hikes on a “pricing algorithm” used by the insurer to identify the likelihood of customer loyalty to the brand after a premium increase.

The algorithm, Slater and Gordon argues in its suit, was used to distinguish between “loyal policyholders” – those that would remain with the insurer after their home and contents insurance premiums increased – and those customers who were likely to shop around for an alternative insurer.

“We’re alleging that millions of Australians paid premiums year-on-year to these IAG insurers on the promise that they were getting a discount,” wrote Slater and Gordon Class Actions Practice group leader Ben Hardwick in a media statement.

“But in reality, because of this pricing algorithm they were using, new customers were typically paying less for their policies than loyal customers who had been with them for more than 20 years,” he said.

According to Hardwick, “the higher the computer program identified a customer’s perceived price elasticity, the lower the annual premium increases the customer would receive”.

Loyal customers, effectively those assessed by the algorithm as having lower price elasticity and thus unlikely to leave the insurer, were faced with steeper increases to their premiums, he added.

As a result, the plaintiffs state, customers were effectively denied all relevant information they should have had access to before renewing their home or contents policies – denying them the chance to either “shop around for a better deal” or request a better price from their insurer.

“The reality is that they are likely to have received cheaper insurance from these brands had their loyalty not been a factor in their renewal calculations at all,” Hardwick said.

Slater and Gordon said the alleged actions by the insurer may amount to misleading and deceptive conduct and/or unconscionable conduct, in contravention of the ASIC Act.

The plaintiffs are seeking compensation for potential losses and damage suffered as a result of the alleged mispricing.

IAG hit back at the allegations and lawsuit, with a spokesperson for the insurer stating categorically that it has “delivered on loyalty promises made to customers and will… defend this class action”.

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

IAG added: “We are dedicated to providing the best possible service and support for our customers.”

Slater and Gordon confirmed it is also considering pursuing a separate class action for similar conduct being levelled at the IAG-owned NRMA.

“These legal proceedings should put all insurance companies on notice that this kind of misleading, deceptive and unconscionable conduct will be acted upon by consumers,” Hardwick said.