IAG (ASX:IAG) share price on watch as ASIC launches legal action

Here’s why the corporate watchdog is taking the insurance provider to Federal Court.

| More on:
A sobbing businessman accused of wrongdoing faces justice

Image source: Getty Images

The Insurance Australia Group Ltd (ASX: IAG) share price is in the spotlight this morning as the Australian Securities and Investments Commission (ASIC) takes the company’s subsidiary to court.

ASIC has launched civil proceedings against Insurance Australia Limited, owned by IAG, in the Federal Court.

The watchdog alleges Insurance Australia Limited misled customers by applying discounts while simultaneously upping premiums. It is alleged NRMA customers missed out on more than $60 million worth of discounts.

As of Thursday’s close, the IAG share price is $5.08.

Let’s take a closer look at IAG’s latest legal battle.

ASIC claims Insurance Australia Limited increased the premiums of some NRMA customers while adding loyalty and ‘no claim bonus’ discounts. Thus, it ensured customers’ overall premiums didn’t fall below a set level.

The watchdog believes at least 596,000 NRMA Home, Motor, Caravan, and Boat Insurance customers were affected by the behaviour between March 2014 and September 2019.

IAG self-reported the seemingly deceptive behaviour to ASIC after a 2019 internal review identified it. The company is working to return a total of $377 million to affected customers. In a release to the ASX this morning, IAG stated:

IAG apologises for this failure, recognises the significance and that this was unacceptable, and is putting this right for its customers as soon as possible.

IAG is far from the only insurance company to be found not providing promised discounts. ASIC’s deputy chair, Sarah Court, commented:

This follows industry-wide failures that have led to insurers repaying more than $400 million to over 2 million home, car, and other insurance customers since 2018. All insurers should take urgent steps to ensure they can and do meet the pricing promises they make.

On top of NRMA, Insurance Australia Limited issues insurance through brands including CGU, RACV, and Coles Group Ltd (ASX: COL) Insurance.

IAG share price snapshot

Right now, the IAG share price is 7% higher than it was at the start of 2021. It has also gained 6% since this time last year.

Should you invest $1,000 in Insurance Australia Group right now?

Before you consider Insurance Australia Group, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Insurance Australia Group wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET and Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Financial Shares