The corporate regulator is suing insurance giant QBE for allegedly misleading customers about discounts to their premiums.

The pricing practices at QBE spanned a more than five-year period, from July 2017 to September 2022, according to the Australian Securities and Investments Commission (ASIC).

"ASIC alleges QBE's pricing model potentially eroded the discounts received by over half a million customers, in some cases to nil," ASIC deputy chair Sarah Court said.

"Some customers were promised discounts for their loyalty when renewing their policies, which they didn't receive.

The discounts were offered through more than 500,000 renewal notices to retirees, loyalty customers, QBE shareholders, those holding multiple policies with the insurer, and those who hadn't made any claims on their policies, ASIC outlined.

The regulator alleges that QBE had a pricing mechanism in place to limit the discounts ultimately given, something that wasn't disclosed to customers.

Customers may have been offered a certain discount in a renewal notice, but the mechanism imposed a minimum premium that could be charged, or used a pricing algorithm to limit the percentage discount someone could receive.

This meant some customers didn't get the full value of the discount they were promised.

Some customers received a smaller discount than was promised, others didn't receive one at all. 

"It is unacceptable for an insurer to promise discounts to retain customers, when behind-the-scenes pricing mechanisms mean customers will never see the full value of the discount that was promised," Ms Court said

"This harms individual consumers and it also harms a competitive insurance market."

QBE has apologised for what it describes as "the inconsistencies" and said it will continue to work with the regulator.

The company has already paid back $73 million to 487,000 customers. The ABC has heard some customers have received back $1,500 in remediation. 

"The proceedings relate to previously reported inconsistencies in the delivery of price promises made to customers," a statement to the stock exchange read.

"Following an external review of its pricing practices in 2022, QBE has taken steps to address the inconsistencies, reported the issues to ASIC and has co-operated with ASIC's investigation which has culminated in today's development."

The insurer has previously announced that it would remediate impacted customers.

Ms Court said ASIC would be seeking penalties as part of the court action.

"Insurance is absolutely fundamental to all of us. We know it is something people are grappling with across the country."

Ms Court said the watchdog wrote to a range of insurance companies citing concerns about the non-delivery of pricing promises in 2021.

"In response, QBE came to ASIC and self-reported some of its conduct in 2022. We have spent time since then making sure what was reported to us was the full extent of the conduct, which has led to the court action today."

Last year, ASIC published a report on dodgy pricing practices that found ongoing pricing failures would lead general insurers to repay $815 million to more than 5.6 million consumers.

Remediation due to the misapplication of price floors — which QBE is alleged to have done — was estimated to be more than half that figure.

Price floors are where a cap or price ceiling is placed on renewed premiums to limit large price decreases or increases. It can prevent a consumer from being provided with a discount that was promised.