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.

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A sobbing businessman accused of wrongdoing faces justice

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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.

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