Improved transparency and a national home insurance comparison website are among the ACCC’s recommendations to address rising insurance premiums in northern Australia.
The Australian Competition and Consumer Commission handed down its final report from the Northern Australia insurance inquiry on Monday.
It includes a conclusion that direct government subsidies would help to make home insurance more affordable.
“Direct subsidies have the greatest potential to work in a targeted way to relieve some of the acute affordability and cost of living pressures facing consumers in higher risk areas, at a lower cost and more effectively than other measures,” the report says
In 2017, the Australian Government directed the ACCC to conduct a wide-ranging inquiry into the supply of residential building (home), contents and strata insurance in northern Australia.
Northern Australia includes Gladstone but not Bundaberg in its legislated definition, however the inquiry’s findings are expected to apply more broadly if they’re implemented.
The report notes that northern Australia is an unprofitable market for insurers and payouts are rising.
It says high premiums are leading to a rise in the number of uninsured homes but there is little help available for customers experiencing payment difficulties.
“Just over half of northern Australian consumers are choosing to pay their annual home and/or contents insurance premium in monthly instalments,” the report states.
“But some insurers apply a fee or surcharge for instalment payments of up to 20 per cent, which can add up to hundreds of dollars a year to the cost of insurance.
“In 2018–19, insurers in northern Australia collected around $20 million from monthly payment surcharges on home and contents insurance.
“Insurers say their instalment surcharges are not so much about administration fees, but rather reflect their experiences that customers who pay monthly have a higher overall claims cost compared to customers who pay annually.
“We recommend clear disclosure of the premium difference (if any) between paying annually and paying by instalments, in dollar terms. Consumers should be able to clearly identify how much extra it will cost to pay by instalments.”
The report says there is little help for consumers struggling to pay their premiums.
Hardship policies offered by insurers typically only provide assistance to consumers who need to pay an excess to make a claim, rather than assisting consumers to keep up with premium payments.
“We recommend that insurers should be required to provide more support to consumers experiencing short term payment difficulties,” the ACCC says.
“This may be the difference between a consumer keeping their insurance during a difficult time or becoming uninsured.”
The report notes that consumers face high costs in searching for potential alternative products, including the length of time it takes to complete online quotes, compare product features and make relevant inquiries.
“It could take a consumer over five hours to provide all the information required to obtain three online quotes and to read the full product disclosure statements for three combined home and contents insurance products,” it states.
“Even if a consumer is willing to invest the time to search for alternate insurance options, the complexity and opacity of insurance markets makes it harder than it should be for consumers to understand their choices and find a suitable product.
“We make a number of important recommendations aimed at providing consumers with the clear and simple information they need to make more confident decisions, including introducing standard definitions for prescribed events and requiring insurers to provide a product consistent with a revised standard cover product.”
One of these recommendations is for the Federal Government to establish a national home insurance comparison website
“It should require the participation of all insurers active in relevant markets, allow consumers to compare policies by features, and make it quick and easy for consumers to act on the results,” the ACCC says.
“An independent insurance comparison website may facilitate more informed consumer choice by assisting consumers to quickly and easily find insurers in their area and offering policies that meet their needs.
“Comparison websites can provide an opportunity for new entrants to increase consumer awareness of their brand at relatively low cost, reducing a barrier to entry.”
Inquiry calls for stamp duty abolition
The ACCC also calls on the Queensland Government to abolish stamp duty on home, contents and strata insurance products; and calls on insurers to enable Centrepay as a payment option.
The Financial Rights Legal Centre has urged the Australian Government to immediately act to implement the recommendations.
Centre Director of Casework, Alexandra Kelly, said all Australians should have access to affordable insurance and a fair claims outcomes in the aftermath of natural disasters.
“We support the ACCC’s conclusion that direct subsidies have the greatest potential to work in a targeted way to relieve some of the acute affordability and cost of living pressures facing consumers in higher risk areas,” she said.
The report says investing in pre-disaster mitigation is an effective option in some circumstances.
The Queensland Government this year budgeted $42.5 million towards the Bundaberg East Flood Levee, which is contingent on federal assistance to go ahead.
Insurer Suncorp said flood mitigation would reduce the cost of insurance premiums in Bundaberg.