A new report by the Office of the Fire Services Levy Monitor has lifted the veil on Australia’s home insurance industry, exposing high profits, poor product and price disclosure, and a severe lack of competition. The report from Victoria’s Fire Services Levy Monitor finds that significant reforms are needed to improve competition and consumer outcomes.
Consumer Action Law Centre CEO Mr Gerard Brody said that poor industry practices means many consumers are paying too much, are often unaware of key policy exclusions, and that finding a better deal is much harder than it should be.
‘Figures from the industry regulator show that insurers’ annual profits totalled $5.16 billion last year. This new report suggests that these profits are higher than that of banks and other industries. If competition was working, profitability would not be this high,’ said Mr Brody.
Mr Brody said the insurance industry had worked hard to create an illusion of market competition through the promotion of multiple brands, but this masks the truth.
‘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 per cent of the Victorian residential insurance in market in 2012-13.
Lengthy disclosure and unfair contract terms can make it hard for consumers to compare products.
‘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’.
‘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. 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,’ said Mr Brody.
Consumer advocates have long advocated for national unfair terms consumer protections to be extended to home insurance. Consumer Action has written to past and present Federal Consumer Affairs Ministers recommending unfair contract terms legislation be extended to the insurance industry, legislation which that has applied in all other consumer sectors since 2011. Doing so would improve the fairness of insurance contract fine print—making policies easier to read and compare, giving consumers stronger protection under the law, and stimulating real competition.
Consumer Action supports the following reforms to drive competition and benefit consumers:
- Simplifying product disclosure;
- Improving presentation of prices, for example, including last year’s premium on policy renewal notices to encourage consumers to shop around;
- Encouraging better explanations of why premiums have changed; and
- Reducing the incidence of under-insurance by informing consumers about increases to costs of rebuilding or encouraging total replacement cover so consumers aren’t short changed when making a claim.
Consumer Action Law Centre is a beneficiary of disbursement of over-collected fire services levies, as agreed between insurers and the Fire Services Levy Monitor, and was selected as having the capacity to represent the interests of Victoria consumers of insurance.