Insurers’ refusal to provide more clarity on how premiums are calculated makes it difficult for consumers to take the right risk decisions, according to the Financial Rights Legal Centre.

“Insurers should not be able to hide behind vague reasons and unsubstantiated assertions about how premiums are priced,” it says in its submission to the Australian Competition and Consumer Commission’s inquiry into insurance pricing in the north.

“The failure of industry to have any mechanism of review of the accuracy of premium calculations is of significant detriment to consumers.

“In the absence of this information, consumers are in the dark and may be making poor decisions.”

It wants an independent inspection process to determine the vulnerability of properties to natural disaster, provide consumers with information on the mitigation options available and verify all mitigation action a property owner has taken.

“Currently there is no independent or regulatory mechanism for homeowners to contest post-mitigation premiums,” the submission says. “We believe consumers will be more likely to take up adequate insurance and undertake mitigation strategies if they can identify a correlating reduction in premium.

“However, this can only be done by promoting great transparency and contestability.”

Margaret Shaw, the consumer representative on the Northern Australia Insurance Premiums Taskforce advisory panel, has also called for more pricing transparency. Insurers should provide a breakdown of the premium so consumers are aware of the cover they are buying.

“We have no idea of how a premium is broken up or what it consists of,” she says in her submission to the inquiry.

“Premium breakdown, broker commissions, third-party commissions would be a good start.”

The Consumer Action Law Centre’s submission says mandatory product disclosure statements have failed to provide consumers with the information they need during the buying process.

“There is now widespread acknowledgement that this type of mandatory disclosure is an outdated consumer protection,” it says.

It supports moves to improve disclosure, information and transparency, in particular proposals requiring renewal notices to include the prior-year premium and component pricing, and standard definitions for key terms in insurance contracts.