Big profits, bad disclosure in home insurance industry

Big profits, bad disclosure in home insurance industry
Big profits, bad disclosure in home insurance industry

A new report shows that home insurance companies are more profitable than banks in Australia.

The Fire Services Levy Monitor Allan Fells has called for greater competition in the industry.

“Insurance companies in Australia are more profitable than banks and this suggests an absence of effective competition. One of the things that would help drive effective competition is for consumers to be better informed,” said Fells.

Fells found that insurance consumers don’t have easy access to their coverage level, with no information about their risk assessment from insurance companies.

He called for a number of measures to improve transparency in the industry, including requirements that insurance companies:

  • Explain premium price changes when policies are up for renewal.
  • Provide more accessible information about what consumers are covered for under a policy and what they are not covered for.
  • Explain how they assess an individual’s risks like bushfire, flood and burglary – eg low, medium, high, very high risk.
  • Clearly indicate any statutory charges (eg stamp duty, GST, fire services levy), detailing them separately to the basic premium cost in the quote or invoice.
  • Explain what additional charges might be incurred as a result of choosing to pay insurance in instalments.

Source: The Office of the Fire Services Levy Monitor

According to Fells, Australia’s home insurance industry also need mandatory short form Product Disclosure Statements.

“Information about what is covered in the policy is often buried in a Product Disclosure Statement that are typically over 50 pages long,” said Fells.

“Other financial services products are subject to requirements to provide a more consumer-friendly, short-form Product Disclosure Statement.”

The Consumer Action Law Centre say the new report exposes “high profits, poor product and price disclosure and a severe lack of competition”.

Gerard Brody, chief executive of the Consumer Action Law Centre, says many people are paying too much for their home insurance due to industry practices, with the insurance industry promoting a false image of market competition by offering many brands.

“While there are many insurance brands in the marketplace, most consumers would not be aware that many brands are dominated by key insurers. The report finds that just three insurers—Suncorp Group, Insurance Australia Group, and QBE—had over 70% of the Victorian residential insurance in market in 2012-13,” says Brody.

He says consumers face difficulties comparing products due to complex and lengthy disclosure forms and unfair contract terms.

“For competition to be effective, we need simple products which can be easily compared with other policies. Comparing product disclosure statements is time consuming, difficult and, frankly, beyond the capabilities of many people,” says Brody.

"Policy terms and exclusions also need to be fair. We’ve seen a caravan insurance policy which said the owner wasn’t covered if the caravan was being towed. This type of ridiculous term can be hidden away in a policy document which is why it’s so important to understand your policy,” he says.

“But if consumers have to go through each contract with a fine tooth comb looking for hidden terms, they’re just going to tune out.”

The Consumer Action Law Centre receives a distribution of over-collected fire services levies, as agreed between the Fire Services Levy Monitor and insurers.

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