Remove unnecessary pricing complexity and fix your systems, practices and controls so you can deliver on the pricing promises made out to customers – that is the core message the Australian Securities & Investments Commission (ASIC) is sending to general insurers, urging the industry to improve its pricing practices.

In the Commission’s newly released Report 765 When the price is not right: Making good on insurance pricing promises, it was revealed that general insurers in Australia will repay A$815m ($544m) to over 5.6 million consumers over ongoing pricing failures.

“This systemic failure by insurers to deliver on their pricing promises has seen more than 5.6 million consumers overcharged A$815 million for their insurance,” said ASIC Deputy Chair Karen Chester.

Pricing failures

The report, which follows an intervention in October 2021 where ASIC called on general insurers to review their pricing systems and controls, found 11 firms (collectively about 68% of the Australian market) that were directed to complete comprehensive reviews to ‘find, fix, report and repay’ their pricing failures.

The report also reveals three main causes of the systemic pricing failures:

• general insurers did not have proper product governance, systems, data and controls in place to carry out their promised prices;
• pricing promises and practices were unnecessarily complex; and
• insurers lacked adequate oversight and controls over some of the pricing promises made or delivered by the distributors of their products.

“It is beyond disappointing that despite past ASIC warnings and action, it took our further direction in late 2021 for general insurers to comprehensively find, fix and repay their customers for these broken promises.”

Karen Chester, Deputy Chair, ASIC

Civil penalty proceedings

ASIC Deputy Chair Sarah Court is calling ‘pricing promises’ a key priority for ASIC, and the Commission has also commenced civil penalty proceedings against Insurance Australia Limited and RACQ Insurance Limited for allegedly failing pricing promises or misleading customers. “There needs to be a general improvement in insurers’ risk and compliance management arrangements to ensure robust systems and controls are in place, enabling insurers to deliver on their pricing promises,” Court said. Besides the two penalties, ASIC says that further investigations on other firms are underway too.

“It is beyond disappointing that despite past ASIC warnings and action, it took our further direction in late 2021 for general insurers to comprehensively find, fix and repay their customers for these broken promises. Earlier action by insurers would have avoided much of the consumer harm we now see, with A$815 million in remediation,” Karen Chester added.

“It’s now up to the Boards of general insurers to ensure the prompt and full repayment of the A$815 million owed to their 5.6 million customers, implement the fixes needed and rebuild consumer trust.”