IAG share price takes a hit amid corporate watchdog action

ASIC alleges IAG applied loyalty discount offers to renewing customers after their premiums were raised first.

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The Insurance Australia Group Ltd (ASX: IAG) share price is down 2.2% to $5.74 amid news that the corporate regulator has launched court proceedings against the insurer.

Let's find out what's going on.

IAG share price down amid news of court case

IAG acknowledged the commencement of civil penalty proceedings by the Australian Securities and Investments Commission (ASIC) against IAG's subsidiaries Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia Pty Limited (IMA) in the Federal Court of Australia today.

The case alleges contraventions of the ASIC Act and the Corporations Act.

It concerns the pricing of, and certain disclosures about how premiums are priced, for renewing customers of SGIO, SGIC and RACV home insurance products.

IAG said:

IAL and IMA maintain they have delivered on loyalty promises made to customers, do not agree that they have misled customers about the extent of the discounts they would receive, and intend to defend the proceedings.

What is ASIC saying?

In a statement, ASIC said loyalty discounts encouraging customers to renew their home insurance policies were misleading.

ASIC said IAG may have increased their premiums before applying the renewal discount offers.

IAG wrote the policies between January 2017 to December 2022.

ASIC Deputy Chair Sarah Court said:

We allege that IAG subsidiaries, IAL and IMA, misled their customers about the extent of the discounts they would receive.

The way they operated their pricing algorithm meant that some longer term or more loyal customers were allocated, or may have been allocated, higher premiums before the promised discounts were applied.

There is a risk that loyal customers, having been promised a discount, were persuaded to stay with these companies, and in doing so lost their opportunity to shop around for a better price.

What else is happening with IAG?

IAG released its FY23 full-year results on Monday.

The insurance giant reported a 140% increase in its net profit after tax (NPAT) to $832 million.

The IAG share price fell 0.86% on the day of the release, suggesting investors were expecting better.

Motley Fool contributor Bronwyn Allen 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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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