The Insurance Australia Group Ltd (ASX: IAG) share price is down after it told the market that ASIC has commenced proceedings against the company.
ASIC takes IAG to federal court
IAG said that the Australian Securities and Investments Commission (ASIC) has commenced civil penalty proceedings in the Federal Court of Australia against IAG’s insurance company Insurance Australia Limited (IAL).
The court proceedings alleges IAL of “contraventions of the ASIC Act and the Corporations Act”.
IAG said that this relates to IAL’s failure to pass on the full discounts to a “significant number” of NRMA Home, Motor, Caravan and Boat Insurance customers between March 2014 and September 2019.
IAG takes it seriously
The company said that it identified the issue as part of a “proactive” review in 2019. It reviewed its pricing commitments across its products and identified the impacted customers to provide refunds.
IAG said that it self-reported the issue to ASIC and is working closely with ASIC through the remediation program.
The company has made changes to its systems and processes since late 2019. It said that this is “part of a significant improved risk culture and control environment”.
Remediation program
IAG said that the customer refunds associated with the court proceedings are covered by the customer refund provision that was set up in FY20 and FY21.
More than 80% of affected NRMA Insurance customers have now been compensated.
IAG apologised by saying:
“IAG apologises for this failure, recognises the significance and that this was unacceptable, and is putting this right for its customers as soon as possible.”
It is important to note that IAG said that the customer refund provision covers other product and pricing related matters. However, it does not include any potential civil penalty outcome.
Final thoughts on the IAG share price
It is better for a company to do the right thing from the start, than to have its reputation tarnished and potentially face a penalty. Shareholders reacting to the news has pulled the IAG share price down over 3.8% at the time of writing.
In general, insurers typically trade at a cheapish valuation with a decent dividend yield. However, storms and recessions seem to wipe out insurance company profits regularly.
Unfortunately it is a ‘wait and see’ situation to see how the ASIC proceedings against IAG turn out.
If I were an IAG shareholder, I would consider whether I had better ASX dividend shares idea to redeploying the money. If I were considering continuing to hold the shares I would redo my valuation analysis to see if it still checks out.
For investors looking for something to get the ideas juices flowing this is an inspiring place to start.
