Insurance giant IAG faces class action lawsuit for allegedly inflating premiums for loyal customers across Australia

A framed photo featuring NRL legend Billy Slater takes pride of place in Kerry Reece’s living room.

She has been a devoted Melbourne Storm supporter since her premiership glory days at the club.

But that same instinct of loyalty has not always served him well.

Kerry kept her home insurance with one company for decades, thinking, “You stay loyal because you believe they will be loyal to you.”

As his premiums rose and the cost of living began to fall, Reece found himself cutting back on small luxuries.

“We’re not going anywhere,” he said.

“I can’t tell you the last time we went to the movies. I think it was Titanic.”

Kerry Reece and her husband Brendan in front of their house

Mrs Reece says she thought her loyalty to the RACV insurance company would be rewarded.(ABC News: Patrick Stone)

Now, a lawsuit filed against insurance giant IAG alleges that the company deliberately targeted customers like Reece, specifically because they were loyal.

The central claim is that a computer algorithm was used to inflate premiums for customers deemed most likely to stick around, a practice called “loyalty boosting.”

Those increases may have had nothing to do with the person’s risk profile or the cost of providing the insurance.

Customers who were likely to leave reportedly received smaller premium increases than those who were expected to stay.

Ben Hardwick, of law firm Slater and Gordon, suspects millions of clients may have been seriously misled.

“(Supposedly) they were giving them a discount for their loyalty when in reality that discount made no sense.

“The insurance company was increasing the base premium before the discount was applied, with the effect that the discount was really worthless,” Hardwick said.

Ben Hardwick stands in front of a window.

Hardwick says the lawsuit alleges that the loyalty discounts were “meaningless.”(ABC News: Patrick Stone)

Class Action Lawsuit Alleges Insurer Misconduct

On its website, Insurance Australia Group (IAG) says it is the largest general insurance company in Australia and New Zealand and its best-known brands include NRMA and CGU.

IAG’s insurance profits total more than $800 million, an increase of almost 40 per cent on the last financial year.

The lawsuit alleges that IAG customers in Victoria, Western Australia and South Australia were systematically misled about their home and contents insurance over the six years to 2024.

The insurance brands involved in the alleged misconduct are the Royal Automobile Club of Victoria (RACV), the State Government Insurance Office (SGIO) in Western Australia and the State Government Insurance Commission (SGIC) in South Australia.

These are two subsidiaries, Insurance Australia Limited and Insurance Manufacturers of Australia, which are 70 per cent owned by IAG and 30 per cent owned by RACV.

Slater and Gordon is also investigating a potential class action lawsuit involving NRMA clients.

a screenshot of the benefits program

RACV offers a benefits program for years of membership with the insurer.(ABC News)

‘A kick in the stomach’

Ms Reece first became a member of the RACV in 1984.

Its recent renewal notice said it has “gold membership” status, which entitled it to a 15 percent discount, a multi-policy discount and a no-claims bonus equal to hundreds of dollars in savings.

He was surprised by accusations that his insurer used a “loyalty boost” on some customers.

It is unclear if she was personally affected.

“I think it’s disgusting,” he said.

“It was a kick in the gut, it just made me feel bad.”

An invoice with a portion of the Discounts section circled showing $114 in membership benefits

The bills claimed to apply discounts of up to 15 per cent for a “membership benefit”, a recent bill by Ms Reece shows a range of discounts. (Supplied)

Hardwick said his firm would try to prove that customers were misled about the price discounts, which meant in some cases they were not actually receiving cheaper insurance.

“We believe many of those people could be entitled to more than $1,000 in compensation (each),” he said.

IAG is also being sued by corporate police ASIC over allegations it misled home insurance customers about loyalty discounts they received relating to the same insurance brands.

However, IAG denied the allegations and is defending the case.