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Insured disputing renewal price told new quotes 'irrelevant'

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A homeowner who complained new customers were being offered home and contents cover for hundreds of dollars less than he was charged at renewal has lost a dispute over his annual premium increase.

Auto and General charged $1426.66 at renewal in July 2018, a jump of 47% from the $968.49 the man paid the previous year.

He took the matter to the Australian Financial Complaints Authority (AFCA), providing a quote he sourced online as a new customer from Auto and General in March this year for $1089 - $338 less than the renewal notice.

AFCA ruled the man’s “reliance on this online quote for new business does not assist his position”.

“I am not of the view this quote for new business has any relevance to, nor impacts the insurer’s entitlement to increase the premium for the 2018-2019 policy period,” the AFCA ombudsman said. “Also, I am not of the view the insurance products and prices offered by other financial firms is relevant.”

The man did win a partial refund after it was determined a 40% discount available to him had not been applied correctly when the premium was calculated.

The dispute comes as so-called “loyalty penalties”, in which insurer pricing practices disadvantage renewal customers compared to first-time purchasers, are being banned in the UK by the Financial Conduct Authority (FCA).

Auto and General said the online quote was indicative only and not based on the exact conditions of his existing policy. It was not uncommon for financial firms to make special offers to attract new customers, it said, and a quote from 2020 cannot be used as a comparison for insurance in 2018, given premiums can increase or decrease year to year.

AFCA ruled Auto and General was entitled to increase the premium by more than it had in previous years, in line with its practices and underwriting process.

AFCA’s jurisdiction does not allow it to consider complaints about how insurers determine the base premium, which is commercially sensitive information, and it cannot compel an insurer to cap any future premium increases.

“In absence of any error by the insurer, AFCA cannot award the remedy sought by the complainant,” the ruling says.

The homeowner had argued the premium increase was unjustified and out of proportion given the risk covered. The man said the premium was excessive compared to other financial firms and there was a significant difference in premiums offered to a new customer for the same risk.

Auto and General said a large part of the increase was due to the re-introduction of the NSW Emergency Services Levy (ESL). There was also an automatic increase in the sum insured amounts for the building and contents risks, and the company had conducted an overall rate review.

“It is not unreasonable to accept that there may be a significant increase in the premium from previous years, in instances where there exist contributing factors such as those referred to and relied on by the insurer in this instance,” AFCA said.

“I am not satisfied the complainant has been successful in showing the premium increase for the 2018-19 policy period by the insurer was done without proper basis or inconsistent with the insurer’s underwriting process.”

However, AFCA agreed the discount had not been properly applied.

“What has not been explained nor reconciled … is how and at what stage was the 39.9% discount applied by the insurer,” AFCA said.

Auto and General appeared to have charged a base premium of $930 after applying the discount but AFCA said the amount should have been $600.73 and the total policy premium should be recalculated on that basis.

“The insurer has failed to adequately and reasonably address the concerns raised relating to the final calculation of the premium,” AFCA said. “The insurer is to arrange a refund payment to the complainant for the difference between $1,426.66 and the policy premium to be calculated in line with the findings,” AFCA said.

See the full ruling here.