A new report from the former chief of the Australian Competition and Consumer Commission (ACCC) is highly critical of the insurance industry and calls for more transparency.

The discussion paper by Victoria’s Fire Services Levy Monitor Allan Fels, ‘Enhancing the consumer experience of home insurance: Shining a light into the black box’, says the industry is worth more than the big banks.

It also notes the industry is not competitive because consumers are left in the dark about how their premiums are being calculated.

Professor Fels says there should be an easy way for consumers to know why they are being charged a premium.

“The information exists, it’s held by the insurance companies. They know why they’re charging you. They tend not to tell you, there is a culture of not informing consumers,” Professor Fels told the ABC.

“The industry, it’s worth $6 billion, so if consumers were better informed there would be tens of millions of dollars saved by consumers.
“Consumers need to know what they paid last year, and how much the increase is, what the reasons are, is it inflation, is it because of a risk reassessment. They also need to know what level of risk they have, whether it’s low, high, medium and maybe why, is it burglary or flood or fire?”

Insurers ‘keep consumers in the dark’

Fire Services Levy Monitor office figures show on average, household insurance premiums in capital cities have gone up 20 per cent in the past two years.

Professor Fels says quotes for insurance can vary by up to 60 per cent for the same property.

“There are very big differences we found with identical houses, that there will be differences of 50 or 60 per cent between a range of insurers and you need the information to be able to shop around.

“It tends to be worldwide practise that insurers keep consumers in the dark, but in some other parts of the world, there’s more information. In the US, you can go to a website and find out the flood risk in your area for example.

“I think they use different calculations and in the end give themselves different profit margins for the same area, so they have a lot of discretion as to what they charge and if the consumers knew of the different charges they’d align much more.”

Professor Fels also believes insurance policies are long and difficult for consumers to understand when it comes to inclusions and exclusions.

He is suggesting an industry standard to lay out the formula of quotes to consumers and a comparison website run by the government or the consumer movement.

Consumers say finding insurance is time consuming

Melbourne resident Andrew Mote became so frustrated trying to get a quote that he ended up going to an insurance broker.

“Even for someone like me who has a fair tolerance for these things it can be hours and it just gets to a point where you say enough, it’s just very time consuming,” Mr Mote said.

He said if every insurance provider gave the same information, it would be easier for consumers, or brokers who are acting for them, to get answers to questions like: “Why is one company insuring me on the basis of a high risk, where as another one is saying I’m a low risk.”

Charles Beaton, also from Melbourne, says finding home and contents insurance for his new home was a difficult experience.

“There was no real guidance in terms of costs and what made up that cost and how you could compare different insurance providers,” he said.

“And also I think probably the most difficult thing was not being able to access any of that online and having to speak to an agent to try and ascertain that sort of information.

“Really, the most important thing for me was what makes up the insurance premium … what sort of things are covered under what scenarios, [for example] with an engagement ring that we wanted to get insurance for. Where was that covered? Was it just in the home?

“The rest of the contents, was it accidental damage, theft, all those sorts of things. Unless you knew to ask over the phone you would miss out.”

Victorian Fire Services Levy was an ‘unfair tax’

In a statement given to the ABC, the Insurance Council of Australia (ICA) says it “notes the Victorian FSL Monitor’s paper and the contribution he has made to the broader debate on insurance disclosure and availability”.

The statement says: “The key points raised are the subject of various government reviews.

“These include the Financial Systems Inquiry, the Competition Review, the Productivity Commission’s review of Natural Disaster Funding Arrangements, Treasury’s examination of North Queensland insurance availability, and the Australian Government Actuary’s examination of home insurance pricing in North Queensland.

“Victorian property owners have benefited from the abolition of the Fire Services Levy (FSL) on insurance products.

“The removal of this unfair tax and switch to a property-based charge represents Australia’s biggest tax reform since the introduction of the GST.

“This provides a fairer system by ensuring all Victorians who benefit from the fire services contribute to funding them, and reduces the disincentive for property owners to be underinsured or not insured.

“As the FSL Monitor has reported, property owners in Victoria have generally experienced significant relief on their insurance premiums, with insurers passing on FSL savings to policyholders.

“The Victorian Government is to be congratulated on its vision and determination to remove this inequitable levy.”