A discount snafu costing almost half a billion dollars unwound like a slow train wreck, new FOI documents show.
IAG, valued at $11.2 billion on the ASX, said it had met requirements to continuously disclose material information to shareholders about the refunds. Chief executive Nick Hawkins toldabout a long-running company-wide probe that could not uncover all problems at once.“You find one. And then … that notification occurs to ASIC. [But] we don’t have a sense at the time of how big it’s going to be,” he said.IAG’s Nick Hawkins.
That initial issue was because a computer algorithm specially designed to stop prices dropping too much – an industry tactic called “cupping” – had been triggered when the premiums went too low. A key problem is the customers were not warned of such a mechanism. It was two months later, in late July 2020, that IAG warned investors of another discounting snafu. It would make another multimillion-dollar provision to cover “two further refund programs in respect of similar pricing issues”. The pricing review was ongoing, it added.
The company reported another $75 million refund hit in early February 2021. Mr Hawkins at the time told theit was “my assumption” that there would be no more major surprises about the discounts because IAG was “significantly through that program of work”.However, in late February, March and April of 2021 IAG sent three more breach notices to ASIC; the details are largely redacted, except for one mentioning a problem about “renewing policies and loyalty discount”.
Not all FOI documents were released and IAG, which promotes itself as a company that embraces “transparency”, had opposed the release of any material. “IAG has submitted that if the documents were disclosed, it would likely act as a powerful disincentive against consulting with ASIC proactively and in a detailed way,” the FOI decision letter said.ASIC has also told the insurance industry to review its pricing going back to five years to ensure similar problems do not emerge.