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Berkshire Hathaway Specialty Insurance
Berkshire Hathaway Specialty Insurance

Customer wins dispute over 79% premium spike

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A man has been awarded $207.46, plus interest, after disputing a 79% jump in his annual home and contents insurance premium.

When he renewed the policy with Auto & General Insurance in February, the personal effects portion of the annual premium rose to $553.57, an increase of 79% from last year’s $309 even though the level of cover did not change.

The Australian Financial Complaints Authority (AFCA) ruled that Auto & General must reduce the personal effects premium to $346.11 - a 12% increase from 2019 - and refund the balance, paying interest from February 14 until the date of payment.

“I have concerns over the specific increase charged in this instance and the insurer’s inability to account for it,” the AFCA ombudsman said.

“The insurer is at liberty to set its premium on a commercial basis. However, this freedom is not absolute. Where an insurance premium has increased markedly in a short period of time, without suitable explanation, there is reason for concern.”

The man had claimed for water ingress in the previous year. This claim related to building damage only, not to contents or personal effects. The building cover premium only rose by 12% on renewal in 2020, and that should be the limit for the personal effects premium too, the ruling says.

“There is no documented reason why this claim did or should affect the premium renewal cost for personal effects,” AFCA said.

The policy provided building cover for $700,000, contents cover for $160,000 and specified personal effects cover for $3,000. Each year, the policy permitted unspecified personal effects cover for up to $1000 per item up to a maximum of $5000 for a claim. The cover also extended to specified personal effects.

Auto & General had argued the 79% premium increase was calculated using several criteria and consistent with its modelling, based on standard actuarial techniques and approved pricing structures which were “rigorously tested”. Its data contained “thousands of lines of calculations” and was commercially sensitive and could not submitted to AFCA, it said.

“The insurer still needs to be able to account for why an increase happens, in situations where the increase is so stark. It has not effectively done so,” AFCA said.

AFCA said its role was not to set or standardise market rates and its authority in relation to policy premiums was limited. Insurers were “generally at liberty to set the terms of their policy premiums in accordance with how they assess a potential risk” and “are not compelled to match prices or improve competitiveness,” it said.

However, it could consider whether Auto & General calculated the premium correctly and applied its calculations fairly.

“We can review the incorrect application of a premium fee or charge,” the ruling says. “In the absence of a suitable explanation, I consider the amount charged for this premium increase is excessive.”

See the full ruling here.