Allowing consumers to pay insurance premiums fortnightly is again in the sights of Federal Government after the recent floods revived the issue of underinsurance.

The Government says up to half of the homeowners and many businesses affected by the Queensland floods were underinsured.

Assistant Treasurer Bill Shorten has the bit between his teeth when it comes to the insurance industry at the moment, and has picked up on this issue in his recent discussions with the Insurance Council of Australia (ICA).

“The Government is very keen to see consumers offered the opportunity to make fortnightly payments to their insurance providers, rather than yearly or monthly payments,” he said after his most recent meeting with the ICA board.

“While this may be difficult for some insurers, each of whom have different payment software, it will improve the capacity of people to pay [premiums].”

ICA GM Communications Paul Giles confirms the industry is looking at the issue of fortnightly payments. “Everything is on the table as far as our discussions with Mr Shorten go,” he told insuranceNEWS.com.au.

These words are music to the ears of consumer advocates, who are anxious to see the talk turn into action on an issue that won’t go away. 

The Royal Commission into the 2009 Victorian Bushfires recommended the industry adopt fortnightly payments – possibly utilising the social welfare payment service Centrepay – to tackle underinsurance.

Around 13% of the homes damaged in the Black Saturday bushfires didn’t have insurance cover and around 30% were underinsured.

Centrepay, which is part of Government welfare agency Centrelink, enables bills to be paid directly from welfare payments. Gas, water, energy and telecommunications are among the service industries using the system.

So why not insurers? As far as consumer advocates are concerned, offering fortnightly payments through Centrepay is a no-brainer. 

Gerard Brody, Senior Manager of Financial Inclusion at the Brotherhood of St Laurence, told insuranceNEWS.com.au the industry has been “obstinate” about the issue, and welcomes Mr Shorten’s involvement.

He says Centrepay has been “a really effective tool for many other businesses”.

“Affordability is not just about the total price but the way in which people can budget and pay for an item,” Mr Brody said.

While many insurers already offer the option of monthly payments by direct debit, in many cases they charge an additional fee. While consumers are not charged for using Centrepay, Mr Brody fears insurers could try to top up premiums to cover their costs – a move he says would be “counter-productive”.

Consumer lawyer Denis Nelthorpe is more forthright: “We would be horrified if the industry put the same impost on Centrepay payments as they do on monthly direct debits.”

Mr Nelthorpe says he understands that some insurers have made “serious enquiries” into offering Centrepay as a payment option but believes costs associated with the system have been a deterrent.

Centrepay charges businesses a standard fee per transaction, but does not offer discounts based on a high volume of transactions – something which Mr Nelthorpe believes needs examining. Centrepay falls under the jurisdiction of the Minister for Human Services, Tanya Plibersek.

But Mr Nelthorpe says the transaction costs could be offset by a lower drop-out rate than other direct debit arrangements.

“If you offer fortnightly payments by Centrepay you’ll significantly improve the number of people who take out insurance with a far far lower drop-out rate,” he told insuranceNEWS.com.au.

He says the insurance industry has “always targeted the middle classes” but has a social responsibility to provide products and payment methods suitable to all sectors of society. “If you want low income-earners paying premiums you offer them Centrepay.”

There is obviously an opportunity for an insurer to corner the low income market, but is there a compulsion in the industry to do so? Do insurers actually want to encourage the uptake of insurance in a sector of society that doesn’t offer much opportunity for cross-selling or up-selling, that represents a high administration cost/premium spend ratio and which may represent a higher claims risk? And do they really have a social responsibility to do so?

These are questions which have been festering for a long time with consumer advocates, and Mr Shorten might be the only person who has the power to find some answers.