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Insurers Accused of Exploiting Loyalty

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Slater and Gordon have initiated a class action against three well-known insurance companies, alleging deceptive practices that inflated premiums for loyal customers.

This follows accusations against Insurance Australia Group (IAG) and Insurance Manufacturers of Australia, claiming they misled millions of customers.

The lawsuit, representing customers of SGIO, RACV, and SGIC, alleges that these insurers promised loyalty and multi-policy discounts but ultimately charged higher base premiums. The deceptive practices purportedly stemmed from a computer algorithm designed to manipulate loyalty metrics.

Slater and Gordon’s Ben Hardwick revealed that this algorithm, which ought to favor longstanding clients, actually penalized them. According to Hardwick, “We’re alleging millions of Australians paid higher premiums yearly on the illusion of discounts, when new customers often enjoyed lower rates.”

This pricing tactic leveraged a customer's perceived likelihood to remain with the insurer even as prices rose. Hardwick explained, “Loyal customers, misjudged as having low price sensitivity, faced steeper price hikes compared to others leaning towards switching providers.”

As a result, many long-term policyholders, unaware of the true extent of their premiums, couldn’t make informed decisions regarding their insurance costs. “They would've likely secured cheaper policies had their loyalty not been factored into the pricing algorithm,” Hardwick added.

The broader implication is substantial as household insurance remains one of the significant annual expenses. It is profoundly disappointing for these customers to see their loyalty rewarded with higher charges, ultimately perceived as unlawful profiteering. The legal move aims to gain compensation for adversely affected customers.

Angela Williams, an RACV policyholder for over two decades, echoed the sentiments, saying, “I thought I was securing good deals. Knowing the involvement of a pricing algorithm manipulating my premiums because of my loyalty is shocking.” Similarly, Debra Dawson, a 16-year-long SGIO client, forgone comparative shopping believing her discounts were exclusive benefits. “Had I known, I would’ve considered alternatives,” she remarked.

IAG, responding to these charges, assured that these practices were already under scrutiny due to a previous legal challenge by ASIC. A spokesperson stated, “We uphold we have honored our loyalty commitments and will defend against this class action, striving to continually provide reliable service to our customers.”

This case underscores the delicate balance of customer loyalty and ethical business practices, highlighting how crucial transparency is for consumer protections in the complex field of financial services.

Published:Friday, 31st May 2024
Source: Paige Estritori

Please Note: If this information affects you, seek advice from a licensed professional.

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Subrogation:
An insurance carrier may reserve the "right of subrogation" in the event of a loss. This means that the company may choose to take action to recover the amount of a claim paid to a covered insured if the loss was caused by a third party.

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