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Industry stands its ground amid hail of fire

Critics were lining up to take shots at the insurance industry during two days of Senate inquiry public hearings last week.

The inquiry is examining transparency, competition and rising prices in the general insurance industry, along with the possibility of setting up a government-run home and motor comparison website.

As has reported, the inquiry has received 22 submissions, and the hearings in Sydney and Melbourne enabled senators to question some of the protagonists.

Insurers were accused of making excessive profits, deliberately misleading consumers and engaging in bizarre underwriting tactics such as giving lower premiums to motorists with white cars and those who arrange their insurance in the morning.

The industry was described as “broken” in the north, and the issue of “kickbacks” to strata managers reared its head time and again.

But insurers stood firm and explained, once again, the way insurance pricing works and their ongoing reluctance to take part in aggregator websites.

News Corp journalist John Rolfe, whose campaigning arguably led to the Senate inquiry, was first out of the traps, firing one highly polished cliche after another.

General insurance is “the biggest stitch-up since the Great Hall Tapestry” and “about as transparent as The Yarra”,” he said.

And he says he’s not alone in his opinions.

“It is the view of the original – and some would say the best – consumer cop, Allan Fels,” he told the hearing.

“It is also what Choice says. In its submission it says that ‘home and car insurance remain two of the biggest cost-of-living concerns for Australian consumers’ and that it is a problem exacerbated by the lack of publicly available comparison data.”

The answer, he says, is an independent, comprehensive comparison website run or overseen by the Commonwealth.

“So there is a clear problem and a doable solution. What is needed is action.”

The National Insurance Brokers Association (NIBA) and the Insurance Council of Australia (ICA) were quick to hit back.

NIBA President Tim Wedlock told the hearing competition is healthy and insurance prices don’t always go up. In fact, over the past three years total premium collected by insurance brokers has dropped.

CEO Dallas Booth accepted that a comparator could work – but only if it focused on much more than just price.

“Critical for us have been the three core elements: what is the nature of the individual’s risk, what are the policies that respond to that risk and what is the cost-benefit analysis in terms of price?” he said.

“If an independent aggregator site works out a way of presenting that information to the client and to the community in an effective and easily understood manner, that has to be a positive for the community, but it is only when they do those three things that it would receive our support.”

ICA CEO Rob Whelan is adamant comparison websites “will lead to adverse consumer outcomes” and a focus on price.

Such sites may work for simple products such as petrol, interest rates or groceries, he says, but insurance products are not the same.

“They vary widely in product features, inclusions, exclusions and claim limits,” he told the hearing. “Each insurer has different underwriting criteria and different risk appetites. Each insurer assesses a risk to a property in much different ways.

“Data enables an insurer to [update] its risk analysis frequently. This is a necessary feature of the market and it makes the delivery of an up-to-date, accurate comparison site extremely difficult and complicated to deliver.”

Senators pressed Mr Whelan on whether more action should be taken by ICA over commissions paid to strata managers by insurers.

“They are kickbacks, aren’t they?” Senator Nick Xenophon said.

“You might call it that, Senator,” Mr Whelan said, before adding it was a longstanding practice.

“And you have decided not to address the issue because it is a longstanding practice?” asked Senator Chris Ketter.

“No, we see there is not necessarily anything wrong with the practice,” Mr Whelan replied. “As I said, it is not illegal, as such, to have intermediaries involved in the placement of business.”

Mr Whelan took the opportunity to repeat his call for increased government spending on mitigation.

“The insurance council was disappointed the Government’s response to the Productivity Commission’s report on natural disaster funding did not take up the recommendations to increase mitigation funding to $200 million a year, matched by states and territories,” he said.

“This is one form of nation-building that would have a lasting positive impact.”

That was a bit off the subject, but a range of consumer organisations kept the focus on the perceived difficulty consumers have in effectively comparing insurance policies.

The industry’s point is that it is well aware of this issue – and as a result of its own enquiries is a long way down the road to solving the problem.

Professor Fels could not resist having his say – in a private capacity, not as the NSW Emergency Services Levy Insurance Monitor.

“We believe that competition is not fully effective in this industry,” he said. “There is the issue of the lack of transparency, which is tied up with that, and I am sure you know the limits on the value of product disclosure statements.”

He highlighted the omission of the previous year’s premium on renewal notices.

“The one we are emphasising – but there is an array of things to do – is that the consumer should always be told what they paid last year as part of their renewal notice,” he said.

“They are not at the moment. Of course, you can go to the trouble as a consumer to look it up, but many people will not, and some people find it quite difficult.

“We do not consider that it is difficult for the industry to do that.”

However, there is some movement on this issue, with IAG already including the previous year’s premium and others set to follow suit.

As ICA has said before, many of the issues raised in the hearings are not new to the industry, and it is already making moves to solve them.

Far better that informed solutions come from within, rather than ineffective measures imposed from outside.

For example, Mr Rolfe may have a good turn of phrase, but he clearly is not across all the key issues. At the end of his evidence, he was asked for his views on disaster mitigation.

“Sorry, I am not sure what you mean by mitigation,” he said.

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