Suncorp was already being investigated for misleading customers by promising insurer AAMI would repair or rebuild damaged homes “no matter the cost to us” when it continued to air the claims in new ads, the banking royal commission has heard.

The company decided the rewards from growing its home insurance business trumped the risk its new marketing would mislead customers, and the decision “paid off”.

AAMI copped a $43,200 penalty over the misleading statements about complete replacement cover, when it could have faced criminal charges and up to $7.2 million in fines.

The royal commission heard AAMI initially decided to hold off on launching a new TV ad about its complete replacement cover products, given ASIC’s investigation.

But after balancing the commercial risks and rewards, it pushed ahead with the marketing promising to “repair or rebuild your house as it was”, adding “that’s not very insurancy”.

Senior counsel assisting the commission Rowena Orr QC suggested Suncorp went ahead because the business imperative to grow its home insurance portfolio trumped any desire to ensure its marketing did not mislead customers.

Suncorp’s insurance CEO Gary Dransfield accepted her characterisation, but said there was a strong belief that the material was appropriate.

Suncorp still maintained the marketing was not misleading, despite the Australian Securities and Investments Commission finding AAMI made false or misleading statements on its website and in radio ads.

The royal commission calculated the $43,200 penalty represented only 0.001 per cent of the $426 million in premiums collected from AAMI policies with complete replacement cover last year.

Commissioner Kenneth Hayne QC said one view could be that it was “a very low cost of doing business”.

Mr Dransfield said irrespective of the size of the financial penalty, there was a significant impact on AAMI’s reputation that organisations like Suncorp took seriously.

The advertising investigation was sparked by concerns over AAMI’s handling of claims after Victoria’s Christmas Day 2015 bushfires destroyed 116 properties, many of them holiday homes, in Wye River and Separation Creek.

The “lucky you’re with AAMI” insurer was criticised over delays in handling claims, underquoting on the cost of rebuilding and pressuring people into accepting cash settlements that in some cases were hundreds of thousands of dollars below rebuild costs.

The inquiry heard that of seven Wye River claims still unresolved by November 2016, quotes obtained by at least three policyholders were considerably higher than the cash settlements offered.

One customer was offered $499,000 when the independent quote was $659,000.

After complaining that AAMI may be “hiding something”, the insurer revealed it had a second quote for $862,000.

Another customer was offered a $677,000 cash settlement when their own quotes ranged from $973,000 to $1.1 million.

Mr Dransfield said the extent of the variations was concerning, but the insurer always expected the provisional sums may be different to the end settlement amount with the customer.

Suncorp also sent policy renewal letters to customers whose properties were destroyed in the fires, charging them premiums for home and contents insurance.