Loyal customers renewing their policies may not have always received the full discount they had been promised from some of the country’s biggest general insurers, according to the corporate watchdog, which is taking the companies behind brands including SGIO, SGIC and RACV to the Federal Court.

On Friday, Australian Securities and Investments Commission (ASIC) deputy chair Sarah Court said the system used by insurers to determine premiums was a “black box” but that promises made to customers needed to be substantiated.

“There is a risk that loyal customers, having been promised a discount, were persuaded to stay with these companies, and in doing so, lost their opportunity to shop around for a better price,” she said.

ASIC commenced civil penalty proceedings against IAG’s subsidiaries, IAL and IMA, alleging they misled customers about the extent of discounts they would receive.

IAG acknowledged the legal action and said it would defend the matter. “IAL and IMA do not agree that they have misled customers about the extent of the discounts they would receive, and intend to defend the proceedings,” IAG said.

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Court said between January 2017 and December 2022, the two companies renewed more than one million home insurance policies and that some customers who were promised discounts based on their loyalty may have had those same loyalty factors – such as length of time with the insurer – also fed into the mechanism used to set their base premium.

“The way they operated their pricing algorithm meant that some longer term or more loyal customers were allocated, or may have been allocated, higher premiums before the promised discounts were applied,” Court said.

Such pricing mechanisms were also used in the insurance industry more broadly, Court said, with a number of insurers currently remediating customers for similar breaches of pricing promises.