Former Australian Competition and Consumer Commission chair Allan Fels says the nation needs a divestiture power, after Opposition Leader Peter Dutton threatened to “intervene” in insurance to tackle soaring premiums.

“We need depth in the insurance pool and we need to make sure we’re not being ripped off by insurance companies,” Mr Dutton said.

“As we’ve done with the supermarkets, where we have threatened divestment if consumers are being ripped off, similarly, in the insurance market, we will intervene to make sure consumers get a fair go.” 

Insurance Council of Australia CEO Andrew Hall says the insurance market is “very competitive”, with 30 companies offering home and motor cover, and divestiture is not a “silver bullet” to tackle affordability issues that are driven by rising risk.

But Professor Fels told insuranceNEWS.com.au that while there may be a range of insurance players, “it is a very concentrated industry, which is on the whole detrimental to competition”.

He says market share is dominated by a handful of major players, offers are difficult to compare, loyalty taxes prevail, and insurers need to do a better job explaining premium rises to customers.

He believes the divestiture power should be available but used rarely, and cautiously.

“It has mainly been presented by Mr Dutton as a possible threat if the insurance sector acts uncompetitively,” said.

“Fear of it is likely to have an effect on anti-competitive behaviour. We should have a divestiture power, but it would need to have safeguards in place. A court would need to decide that there had been a serious breach of competition law, and that divestiture was the best course of action.”

See Analysis.