The Australian Securities and Investments Commission (ASIC) has filed Federal Court action against IAG over a failure to honour customer discount promises that it alleges totalled around $60 million.

ASIC says subsidiary Insurance Australia Ltd (IAL) engaged in misleading or deceptive conduct and made false or misleading representations by stating some NRMA Insurance customers were eligible for certain discounts on home and motor policy renewals, but then not applying the savings.

The practice impacted renewals between March 2014 and November 2019 and affected at least 596,000 customers, in respect of 705,000 separate policies about 1.8 million times, according to ASIC.

IAG says it self-reported the issue to the regulator in 2019 and has been providing refunds through a remediation program, with more than 80% of affected customers now compensated.

“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,” the company said today.

“Since late 2019, IAG has enhanced its systems and processes for the delivery of discounts, as part of its significantly improved risk culture and control environment.”

The insurer made a customer refund provision of $238 million last financial year and $246 million the year before, which also covers other products and pricing-related matters, but which doesn’t include any potential civil penalty outcome.

The ASIC court documents say IAL introduced a “cupping mechanism” that triggered if, after discounts were applied, the decrease in net premium was greater than a percentage limit set in the system. The process “had the effect of recalculating the gross premium and re-applying the relevant discounts to that higher gross premium”, the documents say.

IAL reported the conduct to ASIC on September 9 2019 and removed the cupping mechanism in renewal offers issued on or after September 26 2019, the filing says.

“ASIC is calling on general insurers, including IAL, to ensure customers get the full discounts they are promised,” Deputy Chairman Sarah Court said today.

The regulator says industry-wide failures have led to insurers repaying more than $400 million to more than 2 million home, car and other insurance customers since 2018 and that all firms should take urgent steps to make sure they can meet pricing promises.

“This may require insurers to update legacy IT systems and make improvements across compliance, governance and culture,” Ms Court said. “Where there are failures, or empty promises about price discounts, ASIC will use the full range of regulatory tools available to protect consumers, including enforcement action.”

ASIC is seeking pecuniary penalties against IAL “as the court deems to be appropriate” and requests that the insurer has to publish a notice stating that it has been ordered to pay a penalty because it has made false or misleading representations.

The court documents are available here.