Two-way street
Insurers face pressure to share address-level risk data with customers reeling from premium jumps
By Wendy Pugh
Renewal bill shocks have led to a growing chorus of calls for insurers to provide clearer information on home premium surge drivers, as policyholders question how rises that vastly outpace economic inflation can be justified.
Two parliamentary inquiries have urged more transparency, the Australian Financial Complaints Authority has told insurers to better explain increases and consumer groups say policyholders are not receiving the level of detail they should.
“The insurance industry cannot have it both ways,” Financial Rights Legal Centre senior policy and communications officer Julia Davis tells Insurance News.
“It cannot promote its ability to price risk down to the street level but then refuse to share that risk information with their customers.
Financial Rights Legal Centre’s Julia Davis addresses the Senate inquiry into the impact of climate risk on premiums and cover availability
“Giving customers a price signal by increasing their home insurance premium doesn’t really help anyone if when the customer calls the insurer for more information, all they get is the same generic statements that are already on the insurer’s website.”
AFCA says increases of up to 200% combined with “poor-quality” information are driving requests for it to adjudicate on pricing disputes, which are mostly outside its jurisdiction.
“These are the ones that are more likely to come to us as a complaint because there is that bill shock element to it,” lead ombudsman Emma Curtis told insurers at a member forum. “If there are these significant increases, the more that you can explain to your customers why this is happening, the better.”
AFCA’s remit does not include affordability or general price dissatisfaction, but it will consider possible errors, which may show up in disproportionate increases without justification.
In a high-profile case last year, it found in favour of complainants who disputed a renewal jump of about 60%.
Insurers “can and should do better” in communicating the basis for increases, AFCA told last year’s Senate inquiry into the impact of climate risk on premiums and cover availability.
“This is not a call for exhaustive explanations, rather the provision of sufficient (accurate, timely and specific) information for a consumer to understand the factors that led to the increase and how those factors may have changed at renewal,” the authority said.
AFCA says it is sometimes difficult to get insurers to explain the basis for an increase in a way that is meaningful for the consumer or the ombudsman service.
“For example, if an increase is due to the property being in a ‘flood zone’, a consumer may be able to produce evidence to legitimately dispute this designation.
“However, if insurers fail to provide a meaningful explanation behind the increase, the consumer lacks a basis to challenge it.”
The Senate committee and the House of Representatives inquiry into insurer responses to the 2022 floods have recommended greater transparency, with the issue linked to demands for premium reductions in response to household mitigation.
The House inquiry says the federal government should “investigate mechanisms” to require insurers to more clearly communicate the basis for pricing. It suggests options such as a traffic light rating system for perils, or a descriptive analysis of drivers that could include changes in building costs, peril assessments, or household or community mitigation impacts.
“The industry cannot promote its ability to price risk down to the street level but then refuse to share that information.”
Julia Davis, Financial Rights Legal Centre
“It is becoming increasingly important for consumers to understand the risks posed by increasingly frequent and intense weather events, so they can make good decisions, including taking effective mitigation measures,” the final report says.
The Senate inquiry says insurers should have to provide “a sufficient breakdown and explanation” of premium costs, including details of price changes in response to policyholder resilience and disaster mitigation measures.
It also recommends that the Australian Competition and Consumer Commission monitor prices.
Some insurer submissions to the inquiry said they do not quantify the proportion of a price increase attributable to reinsurance, risk assessment changes or other factors because such information is commercially sensitive or impossible on an individual level, with costs shared across the portfolio.
Customers seeking further explanation can get in touch to discuss their situations, executives told Senate committee hearings.
“I wouldn’t say, relative to the size of our portfolio, we get a majority of members seeking to question a component breakdown, but we do get some members seeking that,” RACQ chief executive of insurance Trent Sayers said.
“When they engage with us, we have the ability to run them through the component parts and what has shifted year on year for them, why that is driving the premium and, similarly, what we can do to mitigate those increases.
“We typically find at that one-on-one engagement that we have the ability to get into a more detailed conversation about someone’s individual risk address.”
Allianz Australia chief corporate affairs officer Nicholas Scofield told the committee the insurer regularly responds to customers getting in touch to discuss premium changes.
“If there are large increases – and often they’re generated by a remodelling of a peril like a flood – and customers contact us and say, ‘Why has my premium gone up more than I thought it should or expected it to?’ we will look into what’s driven that and give them a response,” he said.
The General Insurance Code of Practice independent review – which considered flood inquiry findings in a final report delivered before Christmas – also sought views on the issue.
The Insurance Council of Australia’s submission cautioned against the code adding component pricing to renewal notices or requirements on responding to household mitigation at this stage. Unintended consequences could involve the Code Governance Committee becoming a pricing regulator, which is outside its remit and expertise, ICA warned.
“If there are large increases … and customers contact us and say, ‘Why has my premium gone up more than I expected?’ We’ll look into what’s driven that.”
Nicholas Scofield, Allianz
Work has begun – through the Hazards Insurance Partnership and the National Emergency Management Agency – on a household mitigation knowledge database, and the government is pursuing action to link premium reductions to risk-reduction measures.
“We consider it is more appropriate that these initiatives continue to progress, given the complexities involved, before consideration is given to including new code commitments,” ICA said.
The code review panel was concerned that component breakdowns alone could complicate pricing and be confusing, and cited US Consumer Financial Protection Bureau research showing buyers can end up paying more when product prices are separated into multiple fees.
But it recommended that, subject to financial advice law, the code require insurers to provide transparency about mitigation activities that result in a pricing benefit, which it said would achieve the component pricing goal of offering transparency to help reduce risks and premiums.
ICA released an initial response to many of the code review and flood inquiry recommendations in December, and is considering the remainder.
“We understand the interest in more detailed premium transparency,” a spokesperson tells Insurance News. “ICA is working with its members to consider how best to improve consumer awareness about their premiums.”
Legal Aid Queensland director of disaster relief Paul Holmes says renewal information that breaks down exactly what makes up the cost of insurance is needed to help people take measures to improve the safety and security of their homes.
“If we’re wanting consumers to be better at making decisions, we’re wanting more transparency and we’re wanting to make good decisions about reducing cost, I don’t know what the problem is with setting that out,” he told the Senate inquiry.
Financial Rights says insurers should invest in pricing transparency by updating back-end systems to improve data collection and provision, and if unwilling or unable to provide more transparency, they should expect greater oversight.
It supports the government establishing a permanent pricing monitor, which could be through an extension of the ACCC’s role or via an independent body.
Communications officer Ms Davis says the centre’s national insurance law service regularly gets calls from people who want to know why their premiums have increased. They are not all from disaster-prone areas, and most have never made extreme weather claims.
Insurers, which have suffered years of losses in home cover, have pointed to catastrophe impacts, supply chain bottlenecks, updated flood risk assessments and reinsurance costs in discussing increases, but policyholders often are not getting answers on outsized address-level premium jumps and specific risk factors.
“Insurers are simply not meeting consumer expectations for pricing information,” Ms Davis says. “Home insurance is an essential service, and consumers expect prices to be fair and explainable.”
