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Media Release: Consumers in the dark over home insurance pricing 3 July 2014
MONITOR CALLS FOR OVERHAUL OF TRANSPARENCY IN INSURANCE PRICING AS REPORT FINDS CONSUMERS ARE IN THE DARK.
Thursday 3 July 2014
Victoria’s Fire Services Levy Monitor, Professor Allan Fels, has called for an overhaul of the way insurers provide information about premium prices, as he releases a report that finds consumers are in the dark over how insurance companies arrive at their prices.
The Monitor’s report finds consumers taking out insurance are not provided with easily accessible information about what they are and are not covered for. It finds they are provided no information about whether they are assessed as low, medium, high, or very high for risks like flood, bushfire and burglary, or the reason for premium price rises.
The report highlights the scope for greater competition in the industry, as insurance companies are more profitable than banks.
“Informed consumers would bring about a more level playing field in insurance,” Professor Fels said.
“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.”
- The Monitor proposes a number of measures to improve transparency for consumers when taking out or renewing insurance, including requiring insurers to:
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.
The Monitor has also called for mandatory short form Product Disclosure Statements in insurance.
“Information about what is covered in the policy is often buried in a Product Disclosure Statement that are typically over 50 pages long.
“Other financial services products are subject to requirements to provide a more consumer-friendly, short-form Product Disclosure Statement.”
The report follows a study of insurance companies’ premium pricing practices with respect to bushfire and flood risk. The study was triggered by the Monitor’s investigation of complaints and monitoring of insurance companies’ pricing practices around the time of the removal of the Fire Services Levy.
The Monitor became aware that increases in the cost of home insurance premiums in country areas were at least partly driven by insurers’ re-assessing risk for bushfire and flood.
The Monitor is releasing the report to highlight the lack of transparency in setting home insurance prices, and to encourage regulators to take up the proposals.
“We hope this report will help the relevant regulators better understand – and act upon – the need for more consumer protections in home building insurance,” Professor Fels said.
Media contact: Rebecca Nicholson 0409 216 053