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Lost in transition

Does Professor Allan Fels expect insurers to rip off their customers as the NSW emergency services levy moves to a more equitable collection system over the next nine months?

The NSW Emergency Services Levy Insurance Monitor certainly seems to think that speaking loudly and carrying a big stick when dealing with insurers is the only way to do his job.

Professor Fels is charged with overseeing the behaviour of insurers during the difficult transition of NSW’s levy collection system from insurance premiums to local government rates by July next year.

Insurers wanting to avoid the protracted and sometimes bitter wrangles that marred the Victorian transition in 2013 and after would do well to study his approach when he carried out the same role there. Because there are plenty of indications it’s going to be more of the same. 

The then-Liberal Victorian Government grudgingly inherited the commitment to switch to a property-based system from the Labor Party, which had agreed to the change only after being urged to do so by the royal commission examining the 2009 Black Saturday bushfires. 

Professor Fels, the high-profile former head of the Australian Competition and Consumer Commission, was appointed to monitor and report on insurance prices through the transition period in Victoria, telling in September 2012 he would have “legislated powers to investigate and take action against false, misleading and deceptive conduct and price exploitation”.

One of the insurers’ many criticisms of the premium-based levy system centred on its complexity. Government agencies would tell the insurers how much money was needed each year – and it was rarely, if ever, the same amount – and the insurers would then have to work out how that translated to every relevant policy they carried.

The individual amounts then had to be recalculated for GST and state stamp duty.

Insurers collected the levy during the financial year to June 30 2013, when the new system came into effect. But the exact levy amount was not known until after the end of the year.

It was a ridiculous arrangement, requiring insurers to guess. Added to that was the uncomfortable knowledge that throughout the year policies lapse, new policies are sold and premiums move up and down – and in 2013 they were moving up.

Faced with all that uncertainty, insurers were either going to undercollect the levy or overcollect. Most erred on the side of overcollection. Who wouldn’t?

The median overcollection among insurers in that period was $143,496. Some $23.4 million was returned to 39,000 consumers.

Along the way Professor Fels’ office published a stream of media releases pointing out the errors of insurers and some brokers. The impossibly complicated nature of the transition was rarely mentioned.

Mainstream media didn’t bother asking how such cock-ups happened, especially when they had critical press releases from the monitor’s office to quote from. As a result, insurers suffered a storm of unfair criticism that did nothing for their reputations.

The NSW transition will hopefully be a more positive experience. The NSW Government is changing the levy system voluntarily, so hopefully it will be more consultative through the process in the lead-up to the July 1 2017 changeover.

But insurers are again being threatened with fines of up to $10 million if they engage in “unreasonable pricing” during the transition, and Professor Fels is already saying he “won’t hesitate to take action against insurers that engage in unreasonable pricing or false or misleading conduct”.

Is such negativity really necessary? Professor Fels risks giving the impression that he sees insurers as nothing more than predators that regard their customers as dupes. From a person of his standing, such an attitude is damaging and unreasonable. And also unnecessary.

With the Victorian experience providing a clear example of how not to undertake a transition, it’s to be hoped that the NSW exercise will be less troublesome.

But the Insurance Council of Australia has already warned that overcollection is a very real risk, and says the “experience in Victoria was that an overcollection was automatically interpreted as price exploitation”.

“[ICA] respectfully requests the monitor to recognise the difficulty members face in recovering the exact amount of their statutory contributions,” it says.

The insurers are hopeful that Professor Fels, who knows more about the complexities than most, will be consultative and encouraging this time around, because his guidance can surely help them avoid the sort of problems that marred the Victorian experience.

However, the headlines above recent media releases from Professor Fels’ office – “Insurance monitor to protect consumers” and “Fels moves to protect insurance customers ahead of removal of $800 million in emergency services levy” – indicate we should probably just expect more of the same.

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