Brand transparency – or clear as mud?
Information overload could well be the insurance industry’s fate if Canberra takes up one of the key suggestions in the Productivity Commission’s final competition report.
The commission is adamant more information is the solution to a market dominated by the so-called big four insurers: IAG, Suncorp’s AAI, QBE and Allianz.
The four held a combined 71% share of the $45 billion general insurance market last year and have more than 30 brands pitched at various price points.
And this is what disturbs the Productivity Commission: the apparent lack of readily available details on the brands’ backers and the misleading perception of a highly competitive sector when the opposite is true.
The market is far too concentrated for the commission’s liking.
The report, released last Friday, says concentration has increased in recent years thanks to a wave of consolidations.
“While the commission accepts there is a degree of competition between such brands, they have limited scope on which to compete with one another because they ultimately source their products from the same insurer,” the report says.
“That insurer does not compete against itself, but will seek to maximise its profits across the portfolio of brands it underwrites.
“Although underwriting arrangements are identified in the ‘small print’ on brands’ websites and in their product disclosure statements, these branding arrangements ultimately obscure the concentrated underlying market structure and create the impression of more competition than actually exists.”
To improve transparency, it wants insurance brands’ websites to provide a full list of other brands underwritten by the same insurer, and the Australian Securities and Investments Commission to publish a list of brands owned by insurers.
The commission believes this measure, which also featured in its draft report released in February, will fix the “poor-quality information” environment.
“When looking to purchase insurance, in addition to knowing which insurer is underwriting the policy they are considering, consumers would benefit from knowing the other brands underwritten by that insurer,” the commission says.
“This would allow them to more easily identify policies underwritten by an entirely different insurer to stimulate more genuine competition between insurers.”
There is nothing wrong with equipping a consumer with the information needed to decide which cover best suits their needs and budget.
But what happens if the information adds no value and complicates the pre-purchase process? Will the consumer end up making an ill-informed choice?
Whose fault will it be if the measure leaves consumers in a worse situation – will the industry be made to take the fall, as it has on other occasions?
The industry is rightly concerned this is a measure with plenty of potential to backfire.
“We consider that the commission’s proposal may create uncertainty and confusion for consumers, rather than help facilitate comparability and transparency,” the Insurance Council of Australia says in a submission on the draft report.
“For example, there would be a significant problem if consumers perceive all other potentially ‘related’ brands listed on an insurance brand’s website or ASIC’s website as being similar or identical, even though potentially ‘related’ brands may offer completely unique policy coverages and benefits.
“In this regard, this would also be misleading for consumers.”
The National Insurance Brokers Association (NIBA) is equally sceptical. “Overall, NIBA is having difficulty understanding just what benefit this recommendation is intended to achieve,” its submission on the draft report says.
NIBA is concerned the measure will be “overkill” if imposed on independently owned distributors or third parties selling an insurer’s product, either under their own brand or that of the insurer. It is also worried about the extra compliance burden.
The association calls for a detailed analysis to assess if the consumer benefit achieved is commensurate with the compliance cost involved.
But the commission is having none of it, even though it agrees the measure comes with compliance burden.
It says the proposal will “save time and effort” for consumers.
All the industry can do now is wait for Canberra’s response and hope common sense prevails.