The Insurance Council of Australia (ICA) has hit back hard at “reckless comments” by NSW Emergency Services Levy Insurance Monitor Allan Fels that renewing policyholders are charged a “loyalty tax” in the form of higher premiums.

Professor Fels “has made high-profile claims about industry-wide pricing practices based on an incomplete dataset collected for a different purpose,” ICA says in its response to a discussion paper released by the monitor last month.

Last month Professor Fels called for submissions to be sent to him by yesterday responding to his discussion paper, which claims insurance customers who renew a home and contents insurance policy with their existing provider pay on average 27% more than new policyholders.

The council says the methodology used by the monitor is seriously deficient and that his discussion paper fails to include any analysis of the costs faced by insurers. Nor does it take into account the risk profiles of new and existing customers.

Insurers provided data to the monitor as part of its role in overseeing contracts affected by the emergency services levy. The monitor’s role continued even after plans to switch to a property-based levy last year were dropped. 

But insurers have become increasingly angry at Professor Fels’ wider scrutiny of the industry, which they say goes beyond his remit. 

His latest analysis of pricing was completed without consulting with the industry on the methodology used or the soundness of the findings. 

“In seeking to justify the [monitor’s] activity in the wider consumer policy sphere, the discussion paper conflates price differentiation, price discrimination and price exploitation,” ICA CEO Rob Whelan says in the response. 

The council says Professor Fels has referred to overly simplistic adjustments using the sum insured value, but customer risk profiles also depend on the possibility of an event happening and the statistical distribution of likely payouts. New customers also, on average, select higher excesses than renewing customers.  

“The [monitor] asserts that insurers escalate the sum insured on renewing policies each year, and immediately goes on to state that over-insurance can be a problem for consumers,” Mr Whelan says. 

“Any speculation about over-insurance in the market is both unsupported by evidence and reckless.”

ICA notes that pricing, competition and disclosure questions have also been looked at by consultations and inquiries conducted by Treasury, the Productivity Commission, the Hayne royal commission and other bodies.

“It is imperative that {Professor Fels] allows these processes to take place at the national level, unimpeded by pre-emptive action in relation to NSW.”