The financial ombudsman has told an insurer to refund a policyholder the $1000 cost difference between paying monthly and annually, finding a lack of disclosure on the gap went against code of practice and regulatory principles.

The complainant said she would have chosen the cheaper option if the saving was disclosed at renewal but had learnt of it only during a later phone call with Suncorp.  

“A saving of $1000 is important and clearly relevant information for a consumer when making a decision about renewing a policy, and about how to pay the premium,” the Australian Financial Complaints Authority said.

“It is information that a consumer would reasonably [expect] to be advised about at renewal.”  

Renewal documents showed the monthly instalment had risen 25.9% compared with the previous year, taking it to $501.71.

The product disclosure statement (PDS) said: “If we agree you can pay the premium by instalments but it costs less to pay annually.”

The insurer said there was no requirement to show the size of the gap between monthly and annual payments on the renewal documents, and it had complied with legislative and regulatory rules.

But AFCA says the one-line PDS disclosure on the difference was insufficient, especially in the absence of further information elsewhere in the documents. It says adequate disclosure is a broader concept than “mere” or literal “compliant disclosure”.

The information given has been deemed inconsistent with four of six key principles in Australian Securities and Investments Commission guide RG168, because the disclosure was incomplete, did not promote product understanding and failed to highlight important information and have regard to consumers’ needs.

The omission contravened code of practice principles around “designing and selling insurance products and services in a clear, transparent and fair manner” and on promoting trust, integrity and respect by being open, fair and understanding, and acting with integrity in dealings with the community, especially given financial pressures customers are experiencing.

The insurer said in an additional response to AFCA that it was unable to provide information about the size of savings because they were not the same for all policyholders.

AFCA says the insurer is not required to reveal commercial-in-confidence information, but at policy inception and renewal it has calculated both the monthly instalment amount and the annual fee.

“There is no reasonable justification for failing to disclose the magnitude of the saving that can be achieved by electing to pay the premium annually,” it said.

“The panel considers that such disclosure is good industry practice.”

Suncorp told insuranceNEWS.com.au customers have options to vary their premiums, including adjusting sums insured, switching excesses, selecting additional coverage benefits and options, and choosing to pay monthly or annually.

“AFCA’s determination is on one customer’s circumstances. We do advise our customers it is cheaper to pay their premiums annually,” a spokesperson said.

Renewal documents repeat the customer’s original preference, including the excess, additional benefits and if they chose to pay monthly or annually, and insureds are invited to contact the call centre to learn more about the variable impacts of pricing, and to visit the website to understand why their premiums may have changed, the spokesperson says.

The determination has been seen by insuranceNEWS.com.au but is yet to be published on the AFCA website.