Allan Fels has had a distinguished career in public service and academia. His chairmanship of the Australian Competition and Consumer Commission (ACCC) revealed him as a savvy communicator who maintained a fine balance between the rights of consumers and the needs of business.

The accomplished lawyer, economist and academic has been at the centre of the growth of consumer protection since the days of Gough Whitlam and the Prices Justification Tribunal, through to his retirement from the chairmanship of the ACCC in 2003.

Professor Fels is an expert in competition and a student of the competitive market’s ability to reform economies and control inflation. His appointment by the Victorian Government to monitor the behaviour of insurers in the transition from the premium-funded fire services levy (FSL) to a more equitable system based on property rates might initially have been seen as little more than a public relations exercise.

From the start of the transition saga the Victorian Government’s attitude toward an industry with a large stake in the state and its business life has been disdainful at best. Its rhetoric on the FSL transition issue has been riddled with innuendo that if insurers can get away with a last dip into Victorian policyholders’ pockets, they will. It’s ironic, really.

Professor Fels was named last September as the state’s Fire Services Levy Monitor “to ensure insurers genuinely pass on savings to their customers” after the FSL, Treasurer Kim Wells said.

“New, stronger consumer protection laws will be passed during the transition to protect consumers against price exploitation and misleading and deceptive conduct.”

Fines of up to $10 million were threatened against companies that took advantage of consumers during the transition.

No one is on record asking if Victorians really needed special new laws to protect them against the insurance industry, or whether the industry is really that untrustworthy.  

Mr Wells’ dip into the trough of popular ignorance has not been reflected in any actions by the monitor, which has charged no one. Nor has any insurance company yet parted with a cent in fines.

It would appear that all parties have now pretty much satisfied Professor Fels that they’ve fulfilled their levy transition obligations, which is an extraordinary achievement considering the obstacles they faced, the main one of which was the Victorian Government.

The focus of the FSL transition has now turned to the fear that the insurers might hold on to the levy money by increasing premiums.

Similar FSL transitions have taken place in other states in recent years. Each has resulted in appropriate premium drops.

Two months ago Professor Fels warned that insurers might be sneaking in large premium increases under the cover of the FSL reforms, with an increasing number of complaints about hefty premium rises.

It might be unreasonable price exploitation and misleading conduct, he said.

It doesn’t seem possible that Professor Fels wouldn’t have been aware of the effects of rises in reinsurance premiums following the catastrophes of 2011. He must have been aware that insurers are putting the brakes on competition to deal with rising expenses and claims costs, and raising premiums because those costs aren’t being countered by investment earnings.

He should also have been aware that the introduction of near-universal flood cover would have had some independent effect on premiums.

So when he called a public inquiry to interrogate five leading insurers, you had to wonder what he hoped to achieve. We don’t really go for the notion that insurers would tell him publicly things they wouldn’t have wanted to tell him privately.

The inquiry was played out last week, with lots of executives jetting in from Sydney to front the inquiry and tell Professor Fels that yes, premiums are rising, and the factors behind those rises have nothing to do with the FSL transition.

Perhaps someone should have shown the inquiry what the full premium might have been if the FSL was still in place. It would have been disturbing, especially as Victoria still charges an odious mixture of stamp duty and GST calculated in a way that gives the state the biggest possible take.

As expected, all the invited insurers turned up at the inquiry, although they didn’t have to. The representatives were people senior enough to show the industry was taking the inquiry seriously. Their messages were simple enough: premiums are going up and it has nothing to do with the FSL; some classes will go up and some will go down, according to a range of factors; we can indicate where premiums are at but not accurately where they’re going.

Some insurers were more cagey than others, but all in all the exchanges between the monitor and his deputy and the insurers’ representatives were relatively candid, and all the representatives swiftly slapped back any suggestion they were tempted to be dishonest.

CGU told the hearing it had undercollected on the levy over the past five years. Its total FSL liability was $55 million but it collected $53.1 million. CGU’s current estimates indicate it will slightly undercollect again this year.

QBE CFO Victor Walter was forthright, saying the transition was a “significant operational challenge” and noting: “Insurers were required to remove the FSL in the absence of clear statutory guidance and with an unknown bill.”

He also summed up the industry’s stance when rejecting Professor Fels’ suggestion that the levy’s removal opens up an opportunity to raise premiums to match the fall.

“There is no incentive for the insurance industry or QBE to do what you are suggesting. Given the regulations and our own corporate morality, we won’t increase rates by 26% because we dropped the FSL.

“Rates may go up, but it will be based purely on the technical pricing requirements. We are very conscious as an industry of having a sound technical base, for returns to shareholders and capital strength.”

Suncorp EM Home Portfolio Stephen Jeffery told the hearing his company is “confident there is a healthy level of competition that wouldn’t allow us to put through increases that are higher than necessary”.

After it was all over, Professor Fels told insuranceNEWS.com.au the inquiry had made insurers “more aware of the need to inform consumers much more fully of what is happening to their premiums”.

“I felt there was a very serious lack of information going to the public. There still remains a deficit,” he said.

While at least three of the five insurers present said they went to considerable effort to explain the reason for the premium rises to their customers, Professor Fels told insuranceNEWS.com.au they “should do so directly, not by referring to information on a website”.

Professor Fels says the hearing also “served a useful purpose of making both the monitor and the Victorian public more aware of how the insurers are adjusting their prices for the removal of the FSL”.

“We are pleased that all companies responded. They were making a serious effort to address at least some of our concerns.”

Agreeing that a lot of the commentary by the businesses was of a very general character, he said there were nevertheless “some very interesting details”.

“The concern has always been whether the insurance companies will replace the FSL with a higher premium. Will they take advantage of the fact the market has been bearing a high price reflecting the levy in order to increase their premiums as a substitute for the removal of the FSL?”

It must surely be obvious by now to a person of Professor Fels’ experience that competition really does rule the Australian insurance industry, and that insurance companies aren’t imposing artificial factors to inflate premium rises.

Beyond a few qualified assessments on premium rises, some general market stuff and details of their customer information activities, the insurers had little concrete to do beyond defend their companies’ honour and reputation, which they achieved. 

Hopefully that will finally reassure Victorians – if they ever needed reassuring – that they’re not being ripped off, at least by the insurance industry. Otherwise, an event that never had much reason for existing will have been a complete waste of time, effort and money.