One of Australia’s largest insurers is facing court accused of misleading consumers over prices as the corporate regulator cracks down on companies after large premium increases.

QBE Insurance has been dragged to court by financial watchdog ASIC accused of sending renewal notices to customers that promised discounts that never actually occurred.

ASIC deputy chair Sarah Court said insurers “failing to deliver” on price promises is a “key priority”.

ASIC has also fined other insurers, including the NRMA and RACQ, in the past year.

“QBE’s pricing model potentially eroded the discounts received by over half a million customers, in some cases to nil,” Court said.

“Some customers were promised discounts for their loyalty when renewing their policies, which they didn’t receive.”

RMIT University Professor Angel Zhong explained QBE is being sued over behaviour that had the potential to “short-change consumers” by setting minimum premium thresholds and caps on discounts.

“By capping the percentage decrease in premiums compared to the previous year, QBE restricted the potential savings customers could achieve,” Zhong said.

“These mechanisms, which were not adequately disclosed to consumers, resulted in misleading representations about the true cost and benefits of QBE’s insurance products.”

The case comes after massive hikes in insurance premiums across the industry over the past two years, with consumers often facing double-digit increases in home, vehicle and health insurance premiums.

In fact, ABS data shows that insurance costs have been one of the key inflationary pressures across the economy since Covid-19.

The case against QBE

ASIC alleges QBE told consumers they were eligible for discounts on their premium increases, including as insurance bills soared post-Covid.

But at the same time the insurer was allegedly calculating prices with certain rules in place that limited how much consumers could save and in some cases wiping out their discount entirely.

This included installing minimum prices and using algorithms that limited the reduction that consumers could get against their last renewal notice.

“By setting a minimum premium threshold, QBE ensured that the final premium charged to customers would not fall below a certain amount, regardless of the discounts they were promised,” Zhong said.

“This practice meant that even if a consumer was eligible for a significant discount, the minimum premium could prevent them from receiving the full benefit.”

QBE is being sued over what it said about its promotional plans in lengthy product disclosure statements, rather than the actual pricing policy.

Federal court filings alleged QBE promised customers they were eligible for discounts that would reduce premiums, and that discounts would be applied in “full and without reduction”.

“QBE sent to many customers renewal notices that incorrectly represented that the premium they were being charged to renew their policy had been reduced on account of specified discounts,” an application lodged with the courts alleges.

“In fact, one or both of the pricing mechanisms had operated to reduce or eliminate the benefit of some or all of the specified discounts, and their premium had not been reduced in the manner or to the extent represented.”

Wider crackdown

QBE, which is the name brand of Australia’s largest insurance group, is not the only company in the industry that has faced the wrath of ASIC recently over making dodgy claims about discounts.

ASIC called out companies engaged in a range of “pricing failures” last year and warned firms that it would go after them following a review of pricing practices.

The regulator has remediated more than $815 million for more than 5.6 million customers for pricing failures reported since 2018 and has more recently taken aim at the biggest insurers.

That includes Insurance Australia Limited, which operates the National Roads and Motorists Association (NRMA) insurance brand. It paid a $40 million fine last year over dodgy discounts.

Additionally, RACQ was fined $10 million in November after it sent misleading product disclosure statements on “at least” five million occasions.

About 458,746 customers missed out on more than $86 million in discounts they should have received in that case.