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Commission challenges the brand illusion

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The Productivity Commission, which serves as a major feeder into Federal Government thinking, isn’t convinced insurance competition is as robust as the industry maintains.

Its latest draft report criticising various financial sector practices says a proliferation of insurance brands is creating an illusion of competition for consumers. It highlights the case of pet insurance, which the commission says is one of the least competitive areas across financial services.

“The Insurance Council submits that the Australian general insurance industry is highly competitive,” the report says. “However, we have found that with a relatively small number of providers underlying the proliferation of insurance brands, the markets for many of Australia’s general insurance products are concentrated.”

The report says IAG, AAI (the licensee for most of Suncorp’s general insurance brands), QBE and Allianz held 73.2% of the market in 2016 by gross written premium, while Zurich, RACQ Insurance, CommInsure and Youi each have a share of between 1.7% and 2.2%.

The largest four have more than 30 brands between them, and in pet insurance Hollard underwrites 20 of 22 products on offer.

The Productivity Commission says some products are “undoubtedly differentiated, others not so much”, and suggests improved disclosure to provide more transparency for consumers.

Suncorp says it is working through its response to the report, but makes the point that multiple government reviews have found competition in the insurance sector is strong and pricing appropriate to risk.

“Suncorp’s strategy is to offer a network of brands with differentiated propositions, partners, solutions and channels designed to meet customers’ needs,” a spokesman told “It’s about creating customer value through choice, empowerment and convenience.”

Hollard says it was the first insurer to offer specialised cover for dogs and cats in Australia and has invested heavily in technologies that make it easier to claim.

“Our partner, PetSure, is the leading Pet Insurance Underwriting Agency and provides a wholesale offering to a number of independent brands in the Australian market,” Hollard CEO Richard Enthoven told  “Each of these brands selects different products, and establishes their own marketing and pricing strategies for these products.”

The commission’s report on competition in the Australian financial system takes up some themes from the recent Senate committee inquiry into general insurance, such as problems consumers face in comparing products.

It agrees with the Senate inquiry that previous-year premiums and percentage changes should be displayed on renewals, and notes consumers tend to take out the same cover from one year to the next as a default position.

“There is a wide disparity between insurers in quotes for essentially the same risks, and customer passivity is exploited by providers,” the report says. “The scope is considerable for improvement in consumer outcomes from more information on insurance renewal.”

It also proposes measures to help consumers become more of a competitive force when dealing with companies across the financial services industry.

“While not all financial institutions are the same, the vast majority are using tactics designed to lure new customers in and then exploit the system complexity to retain them,” it says.

The commission notes insurers have faced their own pressures, with prices of retail products rising over the past decade while profitability has fallen. But it sees market entry barriers as significant due to regulatory requirements and capital demands.

A number of “challengers” have grown market share, but despite 30 new entries over the past 10 years consolidation has still taken place as a result of mergers, restructures and market exits.

Many of the new entrants who remain in the market have links with banks and other larger retailers, while some are niche providers, the commission says.

The report calls for a greater focus on competition across the financial system, and says one of the regulatory bodies should be tasked with taking up the cudgels to make this happen.

“Without a champion among the existing regulators, financial system competition is the neglected cousin to financial system stability,” it says.

It notes the Financial System Inquiry, which reported in 2014, found there was too little focus on the benefits of competition and innovation, so issues such as barriers to switching products are falling between the cracks.

The Productivity Commission also tackles the issue of add-on cover, welcoming proposals from the Australian Securities and Investments Commission to mandate a deferred sales model for car dealerships.

“The Government should look to extend the model to all add-on insurance products,” the commission says. “There should be a clear break period between such sales and an extended cooling-off period.”

Also highlighted are problems experienced by home loan customers with loan-to-value ratios above 80%, who take a double hit from lenders’ mortgage insurance costs and higher interest rates.

The report says there should be automatic reimbursement of the “unused” portion of lenders’ mortgage insurance when a consumer refinances or pays out their loan, and calls for feedback on whether more changes are needed.

On insurance innovation, the report says Australia is lagging other developed countries, with the most progress in the least concentrated home and contents markets.

“From the inverse perspective, there is little evidence to suggest competition has been a strong driving force for innovation in the general insurance industry,” it says.

The commission also repeats its previous call for the phasing out of distortionary taxes and levies on general insurance, and suggests that should start from the middle of this year.

Its final report will be released in July, after hearings and submissions, adding to a plethora of inquiry activity and highlighting the challenges insurers face as financial services attract intense scrutiny.