IAG Under Fire: Allegations of Misleading “Loyalty Uplift” Practices

IAG Under Fire: Allegations of Misleading “Loyalty Uplift” Practices

In Kerry Reece’s living room, a framed photo of her with NRL legend Billy Slater takes a place of honour. The image is a testament to her unwavering support for the Melbourne Storm, a loyalty she has maintained since Slater’s premiership days at the club. However, this same instinct for loyalty that has brought her so much joy has recently become a source of disillusionment.

A Lifelong Commitment to Loyalty

Kerry Reece has been a dedicated Melbourne Storm supporter for as long as she can remember, cherishing memories of thrilling victories and unforgettable moments. This loyalty extended beyond the stadium, reflecting in other aspects of her life, including her choice of home insurance. For decades, Kerry remained faithful to a single insurance company, believing that her steadfastness would be reciprocated with fair treatment and reliable service.

“I always thought that staying loyal meant they would take care of me,” Ms. Reece reflected. “You stay loyal because you think they’re going to be loyal to you.”

However, as years passed and her premiums continued to rise, Kerry found herself cutting back on small luxuries to keep up with the increasing costs. Simple pleasures like going to the movies became rare occurrences. “We don’t go anywhere,” she said. “I can’t tell you the last time we went to a movie. I think it was Titanic.”

Allegations of Misconduct: The Lawsuit Against IAG

Now, a lawsuit filed against the insurance giant Insurance Australia Group (IAG) alleges that the company exploited the very loyalty Kerry and many others displayed. The central claim is that IAG used a computer algorithm to inflate premiums for customers deemed likely to stay, a practice termed “loyalty uplift.” This tactic allegedly led to higher premiums for long-term customers, with increases unrelated to their risk profiles or the actual cost of providing insurance.

According to Ben Hardwick from the law firm Slater and Gordon, millions of customers might have been misled by IAG’s practices. “They were [allegedly] giving them a discount for their loyalty when in fact that discount was meaningless,” Mr. Hardwick explained. “The insurance company was jacking up the base premium before the discount was applied, with the effect that the discount really had no value at all.”

Class Action Alleges Systemic Misleading Practices

The lawsuit focuses on IAG customers in Victoria, Western Australia, and South Australia, claiming they were systematically misled about their home and contents insurance over a six-year period leading up to 2024. The allegations involve prominent insurance brands under IAG’s umbrella, including the Royal Automobile Club of Victoria (RACV), the State Government Insurance Office (SGIO) in Western Australia, and the State Government Insurance Commission (SGIC) in South Australia. Two subsidiary companies, Insurance Australia Limited and Insurance Manufacturers of Australia (70% owned by IAG and 30% by RACV), are also implicated.

Slater and Gordon assert that IAG breached the industry code and misused its dominant market position against its customers. “If these customers had known the full story, they could have made an assessment, ‘Should I shop around and go to another insurance company?'” Mr. Hardwick said. Instead, he suggested, customers were deceived by renewal notices that promised rewards for their loyalty, without revealing the inflated base premiums.

Jeannie Paterson, an expert in consumer law from Melbourne University, commented on the complexity of the case, noting that insurer conduct often falls into “murky territory.” She explained that unconscionable conduct could include companies taking advantage of unequal bargaining power and failing to consider the interests of consumers, especially those at a special disadvantage. “A customer who is obviously acting under language constraints, understanding constraints, emotional constraints, charging that person an exorbitant price when that person is clearly unable to make a decision in their own best interest is a classic case of unconscionable conduct,” Professor Paterson elaborated.

While class actions can play a crucial role in holding corporations accountable, they often result in lengthy and costly court battles. Proving financial harm can be difficult, and settlements may leave some consumers disappointed with the compensation received. “Consumers often feel a moral outrage that they’ve been misled or taken advantage of and unfortunately, that’s not what the law compensates,” Professor Paterson noted.

IAG Under Fire: Allegations of Misleading "Loyalty Uplift" Practices

IAG’s Response and Future Implications

However, IAG has denied the allegations and is defending the case. In a statement to the ABC, IAG asserted its commitment to providing the best possible service and support for its customers. “The Class Action … relates to the allegations in the ASIC legal proceedings filed in August last year about SGIO, SGIC and RACV home insurance products. We are defending those proceedings,” the statement read. IAG maintains that it has delivered on the loyalty promises made to customers and will defend the class action vigorously.

The company has also been sued by the Australian Securities and Investments Commission (ASIC) over similar allegations regarding misleading loyalty discounts. IAG denies using computer modelling to deprive customers of the full benefits of loyalty discounts and refutes claims that consumers were harmed. In a report from June last year, ASIC highlighted that IAG would repay $447.2 million to 4.25 million customers for pricing failures since 2018, with the sector overall refunding more than $815 million for overcharging.

For Kerry Reece and her husband, the unfolding lawsuit raises serious questions about whether their loyalty has been exploited. Despite their long standing relationship with RACV, the allegations have made them reconsider their trust in the insurer. “If I had known [then], when it was coming up for renewal every year, I would have definitely gone on the phone and shopped around,” Kerry admitted.




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