A dispute authority ruling that backed a consumer who complained about a 60% increase in home and contents premiums has caused concern among insurers.

As insuranceNEWS.com.au reported last week, the Australian Financial Complaints Authority found Suncorp had not justified the rise and ordered it to adjust the premium in line with the average increase since 2020.

AFCA’s rules prevent it from considering complaints about premiums under many circumstances, and it cannot force insurers to reveal commercially sensitive information. But it can intervene if an error has been made.

Suncorp argued the property faced high risk for bushfire and hail and there had been “an update to the renewal premium capping” that contributed to the overall increase.

But AFCA was not convinced. “The insurer could not provide a reasonable explanation or justification for the significant increase despite having a sufficient opportunity to do so,” it said. “This indicates it is likely the premium has been calculated incorrectly.”

Industry consultant Ron Arnold asked on LinkedIn whether the ruling was “opening the proverbial can of worms”.

“This AFCA decision on pricing may send a shudder down the spine of many insurance pricing managers,” he wrote.

A senior industry source confirmed the determination had been noted by the major insurers and expressed concern that AFCA may not understand how capping is used and the benefits it can bring.

If a property is reassessed for flood risk, for example, and this results in a significant premium rise, insurers will often cap the rise and introduce it gradually, to reduce the impact on the consumer.

But in the current high-inflationary environment, there can still be a large rise once the capping comes to an end.

“What are AFCA saying? That we can’t use capping? Capping is a customer-friendly tool,” the source said. “This insurer is potentially going to be forced by AFCA to write a premium that it considers insufficient for the risk. And that is dangerous.”

AFCA declined to comment on the reaction to the ruling.

"It is our policy not to comment on individual decisions or determinations, except to say that each decision turns on the specific facts and circumstances of a dispute, and this generally involves nuanced distinctions," a spokeswoman said.

The spokeswoman also pointed to AFCA's fact sheet on rules in relation to premium increases.