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Beyond the levy: Fels hits out at price divergence

Monitoring of the emergency services levy (ESL) removal from NSW policies has taken an unexpected diversion into wider issues, with data collected for one purpose being used for another – namely criticising insurers for failing to support comparison websites.

The levy will be removed from policies from July 1, and ESL Insurance Monitor Allan Fels is tasked with making sure companies take out the charge, inform consumers and reduce bills by the correct amount.

As part of that process, the monitor has set up a database of quotations for building and contents insurance on a standard household profile, with details included in a quarterly report to the state Treasurer.

But the information from 12 insurance brands for 11 specific addresses in NSW has highlighted wide price divergences and has proved something of a red rag to a bull.

“It’s very concerning there are such big differences in prices quoted for the same property,” Professor Fels says. “It suggests that competition is not fully effective in this industry.

“Consumers can save hundreds of dollars by shopping around each time they buy or renew their property insurance policy. However, evidence shows most don’t, and miss out on savings.”

It’s not clear exactly what this issue has to do with the role of a monitor employed to ensure fairness in the way the old NSW emergency services levy is removed from insurance policies, but Professor Fels is a seasoned commentator who knows how to put pressure on industries via media statements.

The former head of the Australian Competition and Consumer Commission says insurers are “ignoring” calls to list the previous year’s policy cost on renewal notices, and are “very quick to oppose” establishment of independent home insurance comparison websites.

“Better and more transparent price information doesn’t mean consumer only focus on price and no other elements of a policy,” he says. “I reject the recent Insurance Council of Australia (ICA) claim that focusing on price ‘distracts consumers from researching policy details, such as exclusions and limits’. It is more likely that the opposite is the case.”

Says who? The insurers’ case is based on market research, while the professor seems to base his opinion on little more than – well, his opinion. Ironically, he has focused on price in his reaction to the quotation differences, rather than broader matters at play when it comes to the suitability of policies.

ICA points out these include varying exclusions, inclusions and limits, and the possibility of total replacement or agreed-value cover.

“Contrary to Professor Fels’ assertion, the range of premiums he has identified demonstrates intense competition in the household insurance market,” ICA CEO Rob Whelan says.

ICA notes that the Australian Securities and Investments Commission, Australian Prudential Regulation Authority, the Financial Rights Legal Centre, the Consumer Action Law Centre and the UK Financial Conduct Authority also have concerns about comparison sites.

LMI Group MD Allan Manning says price is a “long way third” after quality of coverage and claims service when it comes to key considerations in buying insurance, and Professor Fels’ comments made him “see red”.

“The fact of the matter is you typically get what you pay for, but it is not easy for the consumer to understand the complexities of the policies, nor the claims service, until it is perhaps too late,” he says on his blog.

“If my broker… came to me recommending I chose a product on price alone, I would change brokers.”

Home policy buyers would prefer to pay more, Professor Manning suggests, if it means an insurer meets a claim with minimum fuss, allowing choice of repairer and showing empathy during a crisis.

Professor Fels for his part maintains a significant amount of literature and international experience can be drawn upon to overcome the shortcomings of price comparison websites.

“A well-developed price comparison website has the potential to enhance competitive price pressure in the property insurance market and would help raise consumer awareness of price differences and price consciousness more generally,” he says in his report.

He also notes the UK Financial Conduct Authority’s new disclosure rules require insurers to provide last year’s premium alongside the current year’s price.

“The evidence from the UK is that home insurance customers who have been with the same

company for five years pay, on average, 70% more than new customers,” the report says.

Professor Fels’ comments come as a parliamentary inquiry examines the costs and benefits of establishing an independent home, strata and car insurance comparison service in Australia.

In the meantime, there is much work to do on removal of the ESL from NSW insurance policies.

Awareness about the current insurance-based funding model is low and a high proportion of consumers can’t explain how the emergency services are funded, and are unaware of the proposed changes, the monitor’s quarterly report says.

An advertising campaign aims to improve the situation, but it is insurance companies’ responsibility to explain in writing to their customers how the ESL is being removed from policyholder premiums.

“The monitor became increasingly aware during the quarter that many insurers are not meeting this expectation and a number of individual companies have been subject to complaints about their communications,” the report says.

The ways insurers add the ESL payment and the fact the financial-year levy sits on top of 12-month contracts, which can start at any time, offers potential for customer confusion during the shift to a property-based charge.

The Victorian fire services levy removal program – also overseen by Professor Fels – indicates there are plenty of challenges ahead. Prospects for a smooth transition during this critical period would be raised by far closer co-operation between the monitor and the industry – and more concentration on the central issues Professor Fels is employed to monitor.

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