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Senate inquiry: 15 ways to improve insurance

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Towards the end of last year the Senate Economics References Committee was tasked with examining transparency, competition and rising prices in general insurance, along with any potential benefits of a government-run insurance comparator.

The inquiry held public hearings in Sydney and Melbourne, where the atmosphere turned distinctly hostile.

News Corp journalist John Rolfe was one example, declaring general insurance “the biggest stitch-up since the Great Hall Tapestry” and “about as transparent as the Yarra”.

Now the committee has published its report – a detailed piece of work, featuring 15 recommendations.

And overall, the industry will probably breathe a sigh of relief.

Its argument for increased mitigation spending, and the potential for reduced premiums, was heard loud and clear.

“As well as the obvious benefits mitigation provides with regard to protecting life and property, the committee agrees with industry stakeholders that increased investment in well-designed mitigation by all governments should help reduce home and strata insurance premiums over the long term,” the report says.

Last year the Federal Government published its response to the Productivity Commission’s report on natural disaster funding arrangements, ignoring a key recommendation to increase mitigation spending to $200 million a year.

The Senate committee recommends that response be reconsidered, and also that all governments work together to reform national disaster funding arrangements “as a matter of urgency”.

But other recommendations will be less pleasing to the industry.

Despite a raft of submissions pointing out the damaging effect insurance comparison sites can have, Senators won’t let that proposal go.

“The committee… acknowledges the strong concerns raised regarding any proposal to establish an independent comparison service for home, strata and car insurance in Australia, in particular, the risk that such a service could lead to consumers focusing on product price rather than value,” the report says.

However, it recommends the Government carry out a detailed proposal for a “more simplified” insurance comparison tool.

Transparency was a major issue for the inquiry, with the product disclosure statement (PDS) regime considered unfit for purpose.

“The committee is deeply concerned by the apparent lack of transparency in the general insurance industry with regard to product disclosure, and the detrimental effect this has on consumers’ ability to effectively compare similar insurance policies,” the report says.

It recommends requiring insurers to disclose the previous year’s premium on renewal notices and provide an explanation of premium increases when requested by policyholders.

It also says component pricing of premiums should be available to policyholders.

An independent review of the standard cover regime is also recommended, along with the development of standardised definitions of key terms for general insurance.

The use of key facts sheets should also be reviewed, examining their effectiveness in helping consumers understand home and contents policies, and whether they should be introduced to other forms of insurance.

The committee also calls on the Federal Government to release a response to the final report of the Northern Australia Insurance Premiums Taskforce, and recommends a further review into competition in the north Queensland strata market.

It says the Australian Securities and Investments Commission should undertake a comprehensive review of the north Queensland home insurance comparison website.

And it recommends the removal of general insurers’ exemption from unfair contract terms laws – which the industry strongly opposes – and a crackdown on strata manager commissions.

The Insurance Council of Australia (ICA) welcomes the support on mitigation, and says it is already focusing on the disclosure issue.

“Many of the recommendations are already being addressed by ICA through initiatives including the disclosure taskforce and the review of the General Insurance Code of Practice, through measures being implemented by insurance companies and through existing government programs,” CEO Rob Whelan says.

Mr Whelan says the committee received “extensive evidence” from consumer groups, regulators and industry that price comparison websites do not empower customers to choose the best product for their requirements.

“Insurance is highly complex,” he says. “You can’t compare insurance products as though you’re comparing cans of soft drink, and each insurer’s product is competitive on its features as well as its price.

“ICA notes the recommendation relating to a price comparison tool, but believes enough evidence has already been provided to demonstrate a government-run aggregator would not stand up to a cost-benefit analysis.”

National Insurance Brokers Association CEO Dallas Booth says the report shows there is nothing fundamentally wrong with the general insurance industry.

“There are areas for improvement, but certainly there are no signs of fundamental problems or weaknesses,” he says.

He agrees with the recommendation to investigate the standard cover regime.

Standard cover provisions is something we have raised a few times. Clearly the current provisions are not achieving their objectives.

“One way around relying on PDSs is to review the standard cover terms and conditions and have policies that include features 90% of people would assume are in there.”

Mr Booth also backs the move to look closely at strata manager commissions.

“We are concerned many strata managers are being paid commission for distribution of insurance when they are not trained and are not experts. It needs to be addressed.”

He is also concerned brokers do not get more attention in the report.

“If people are confused they have to be encouraged to get advice. That point was not mentioned at all in the report and that worries me.”

The industry will be disappointed that the government comparator proposal is still clinging to life. But it will welcome the strong stance on mitigation.

On some of the other issues, it will feel the Senate committee’s input is an unnecessary distraction.

While some of the issues examined by the senators remain far from being solved – and some of the recommendations would undermine the industry’s competitiveness if they are ever forced on it – insurers have demonstrated previously that solutions can be found where public and political pressure makes it prudent to find them. Flood insurance is a case in point.

In this case it would be far better for the industry to devise its own solutions to the more contentious issues raised at the inquiry before that external pressure becomes an irresistible force.