By John Deex

I’ll start this story by confessing a cardinal sin.

Last year I neglected to give my emailed home and contents renewal notice the attention it deserved. I have excuses (more on that later), but as a result, the first time I realised my premium had increased by exactly 100% was when a ridiculous amount of money exited my bank account.

For a very average house in a very average Melbourne suburb (nowhere near a river, lake, canal etc, or fire-prone bushland), I was now being charged an annual premium of $5496. The simple question I had was, why? I’d never claimed in more than 10 years, and nothing had changed.

To put that figure in context, the mean annual home premium in Victoria – according to last year’s Actuaries Institute report on affordability – is $2075. The same report indicates my premium falls into the top 5% across the whole country.

I complained to my insurer – which shall remain nameless. It was surely a mistake.

No, they assured me, the policy had been “priced correctly”, was in line with the market, all discounts had been applied, and there had been no so-called loyalty tax.

So how had the 100% rise come about?

Usually such sharp rises relate to reassessed flood risk, but I had no flood exposure. Yes – as insuranceNEWS.com.au has reported – premiums had been rising, to counter soaring costs and make home insurance profitable again. But this inflation was tracking well under 20% – nowhere near 100% in a single year.

Surely all I needed to do was ask. A number of insurer executives assured a recent Senate inquiry that, of course, when a customer asks why a premium has risen sharply, a full explanation is given.

This was not my experience. Despite repeated requests, I wasn’t given a specific reason for the rise, apart from being told that lots of different factors go into premium calculations. 

My sum insured went up (not at my request) 8.6% for home and 7.7% for contents – but this hardly makes a dent in the 100%.

Confused and frustrated, I cancelled my cover and moved to another insurer that charged about $2000 less for the same risk.

And that was the end of the matter – until an unusual story on insuranceNEWS.com.au caught my attention. The article explained how an Australian Financial Complaints Authority ruling had gone in favour of an insured slugged with a 60% increase.

AFCA’s jurisdiction in relation to premium rises is limited. It cannot interfere with insurer pricing mechanisms, and to win a dispute the complainant usually needs to show an error has been made.

In this case the ombudsman said the insurer hadn’t justified the rise, and it was forced to adjust the premium in line with averages.

And this was for 60% – I’d been hit with 100% that seemed equally unjustified.

So, I filed my own complaint with AFCA. I explained I’d been given no specific information to account for such a rise, and that my renewal email – which indicated that I was “continuing to save” and that there was “nothing” I needed to do – was disingenuous. Only in the attached documentation (which of course I should have checked) was the dramatic rise detailed.

The insurer’s initial effort to put the complaint to bed was disappointing.

I was informed the insurer had “introduced new geocoding software” and “transitioned to a risk-based pricing model”, but the data used to calculate my premium was “commercially sensitive”.

What were these risks the insurer had suddenly discovered I was so exposed to? Why was my home now considered one of the riskiest properties in Australia?

As insuranceNEWS.com.au has reported, the federal government is keen for insurers to share such information so that homeowners can take action to mitigate risks at their property, and in doing so reduce their premiums.

But my insurer wasn’t telling, and it was only by reading its correspondence with AFCA that I finally found the answer I was looking for.

In its “formal pricing review” provided to the ombudsman, overland/pluvial inundation was revealed as “the main driver behind the premium increase”.

So there we have it. 10 months and many, many emails later, the mystery is solved, and I have valuable information that might enable me to reduce the risk at my property.

But why did it have to be so hard? AFCA is overloaded with insurance complaints and there has been a surge in those relating to premium rises. Its consistent advice to insurers has been to give proper explanations.

If I’d been told more precisely why my premium went up 100%, I’d never have troubled AFCA. And I’m sure there are many others in the same boat. Consumers will likely remain suspicious about insurer pricing while it remains opaque – and there’s no need for it to be that way.

The counter argument would be that there’s a cost to providing information that most don’t care about.

But increasingly it seems people do care, and perhaps it’s worth a little extra on the premium to know why it’s doing what it’s doing, and what risks your home is exposed to. It would engender trust, and a feeling that your insurer is working with you, not against you.

“Use a broker” is another likely response – and for good reason. But do brokers really want to take on millions of direct home and contents policies?

I’m still not entirely convinced my doubled premium, and the reasons for it, would stand up to serious scrutiny. The house has been here 50 years and during heavy rainfall water always flows straight past it into adjoining parkland. And why didn’t other insurers put me in the high risk bracket?

However, to win the dispute I’d probably have needed to engage my own engineer – which seems a step too far. As a result, while AFCA decided my complaint did fall within its jurisdiction, it was shut down in favour of the financial firm without requiring a full determination.

But what’s the difference between my case and the example where the insured did win out?

A very patient AFCA employee explained to me that the evidence my insurer provided was much more convincing than in the previous example. 

Of course I couldn’t see it myself – it’s commercially sensitive.