Law firm claims insurers are punishing loyal customers

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Slater and Gordon is investigating a possible class action against two prominent insurance companies, claiming policyholders may have been misled.

The legal giant says customers promised loyalty discounts did not know of an underlying ‘loyalty tax’. The tax basically reverses the discount. Evidence of the practice is publicly available, says Slater and Gordon.

Should the action proceed and be successful, it could be damaging to the brands of the companies involved: Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia Pty Limited (IMA). The companies come under the umbrella of Insurance Australia Group. Though it’s one of Australia’s biggest insurance companies, it’s not a household name, and neither are IAL and IMA.

But the brands involved in Slater and Gordon’s action are well known – especially in their home states: RACV, SGIO and SGIC. The damage done by revelations of a stealthily inserted loyalty tax could be considerable.

In a media release, Slater and Gordon made it clear that the matter is at an investigative stage. The statement refers to “potential class actions”.

The loyalty discount giveth and the loyalty tax taketh away

Brand loyalty is an important feature of the retail world, for buyers and sellers alike. Customers like the idea of rewards from the retailers or businesses they return to regularly. Likewise, retailers with loyal customers have a guaranteed income stream. And that grows if a loyal customer recommends the business to others.

It’s a win-win relationship that one would think a business or retailer would not want to endanger. However, if Slater and Gordon’s investigations result in a class action, the relationships between the RACV, SGIO and SCIC and many of their customers could be severely damaged.

In situations such as these, it’s not price that would damage or destroy many customers’ loyalty, but perceived deliberate deceit.

Slater and Gordon has not yet initiated a class action, but is investigating the possibility. Nevertheless, the company says the publicly available information indicates policyholders offered loyalty discounts knew nothing of an offset.

The offset mechanism was a ‘loyalty tax’ that the insurers built into the base premium without policyholders’ knowledge.

Slater and Gordon’s view

Slater and Gordon’s Henry Hamilton-Lindsay said the loyalty tax targeted those least likely to change insurers. Mr Hamilton-Lindsay is a class actions associate with the firm. The insurers “used an algorithm to determine who was most likely to renew their policy”, he said. They then “took steps to increase those customers’ base premiums, despite them often being long-term customers”.

Mr Hamilton-Lindsay is concerned it could be a widespread practice.

“We believe there may be hundreds of thousands of Australians who thought they were receiving discounts by remaining loyal. In reality [they] were being charged hundreds of dollars more each year as a result of that loyalty,” he said.

“We believe that money belongs in the pockets of everyday Australians, particularly given the rising cost of living.”

Slater and Gordon is no stranger to the world of class actions. It previously brought consumer credit insurance class actions against Australia’s ‘big four’ banks. Those actions resulted in a $176 million settlement.

Customers potentially affected by the insurance companies’ practices can register directly with Slater and Gordon.

Do you keep a close eye on your insurance premiums? Have you noticed any sneaky pricing tactics? Let us know via the comments section below.

Also read: Calls for reform over funeral insurance ‘rort’

Written by Andrew Gigacz

Andrew has developed knowledge of the retirement landscape, including retirement income and government entitlements, as well as issues affecting older Australians moving into or living in retirement. He's an accomplished writer with a passion for health and human stories.

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  1. I have JUST this week been through this exact same thing. I handle all these type of things for a senior age friend who does not use computers. His car insurance renewal came in – he was with NRMA. I was totally shocked at their blatant rip off, they must rub their hands with glee. He has been with them 12 years. Last year premium was $985. This year, they want $1465. I went on their web site and even a brand new premium – with ALL details the same – the premium was $1125. I have renewed his policy elsewhere for $628, with better agreed value and lower excess. Appalled at their thieving.
    About 6 years ago, my 86yo aunt (who was recently widowed) rang me in tears, she had just received her home renewal. I will never forget the shock of seeing it round $1465. And I should state – we lived over the road from each other in similar style older homes on same size block. I remember her crying saying – “but I’ve been with them for over 25 years”. I rang them but they would not budge. I managed to get her far better cover with another company for around $716.
    I found the same with RACQ – their so called Gold Membership makes not a cent of difference when getting a quote for anything. Every year I find I have to spend considerable time chasing around quotes for all insurances. And insurance companies see complacency and seniors as deliberate targets.

  2. Why have insurance at all. 99% of us will never need it. The premiums represent very poor value for money. I dropped all mine ten years ago and have tens of thousands in the bank as a result earning interest for me not them.

    • Might be okay with car insurance but would need to have minimum 3rd party property. Tail ending a new RR could be 100’s of thousands. Even a new small car can run into 10’s of thousands.
      When it comes to house and contents. Even a simple burst water line causing a flood inside your home can run into many 10’s of thousands of dollars.
      Not having insurance can be costly. In saying that insurance for the home can be out of the reach of many with premiums skyrocketing.
      If you don’t want to insure then you take on a 100% of risk.

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