Towards the end of last year, the Senate Economics References Committee was tasked with examining transparency, competition and rising prices in general insurance, along with any potential benefits of a government-run insurance comparator.
The committee has now published its report, featuring 15 recommendations which have largely been welcome by both the Insurance Council of Australia (ICA) and the National Insurance Brokers Association (NIBA).
The report made an argument for increased mitigation spending, echoing similar urgings put forward by the ICA, the Productivity Commission and the rest of the industry.
“As well as the obvious benefits mitigation provides with regard to protecting life and property, the committee agrees with industry stakeholders that increased investment in well-designed mitigation by all governments should help reduce home and strata insurance premiums over the long term,” the report says.
ICA welcomed the recommendation and CEO Rob Whelan said, ““The ICA agrees the Federal Government should reconsider its response to the Productivity Commission. Investing at least $200 million a year in mitigation and resilience should be treated as nation building that protects vulnerable communities for generations.”
NIBA CEO Dallas Booth said the Senate Committee found nothing fundamentally wrong with the general insurance industry in Australia, and recognised the critically important role insurance plays in providing financial security for Australians and Australian businesses.
Transparency was a major issue for the inquiry, with product disclosure statements (PDS) considered unfit for purpose.
“The committee is deeply concerned by the apparent lack of transparency in the general insurance industry with regard to product disclosure, and the detrimental effect this has on consumers’ ability to effectively compare similar insurance policies,” the report says.
“Many of the issues raised in the report are already being addressed, with work by the Insurance Council’s Disclosure Taskforce, and the recent reference to the ACCC to inquire into home, contents and strata insurance across Northern Australia”, Booth said.
“Recommendations in relation to remuneration of intermediaries do not take account of information provided by insurance brokers in their Financial Services Guide, nor does the report mention the requirements of the Insurance Brokers Code of Practice regarding the disclosure of broker remuneration.”
Whelan said that the industry is already focusing on the disclosure issue, “Many of the recommendations are already being addressed by the ICA through initiatives including the Disclosure Taskforce and the review of the General Insurance Code of Practice, through measures being implemented by insurance companies and through existing government programs.”
The report also recommended a “more simplified” insurance comparison tool despite several submissions pointing out the damaging effects of judging insurance based on just price.
Booth said the disappointing aspect of the report was the failure to recognise the importance of advice. “People and businesses have different risk exposures, and insurance policies often differ in important aspects. It is critical that people who do not understand the technical aspects of insurance get advice from a qualified, experienced insurance professional – their insurance broker.”
“NIBA will liaise with the Federal Government in relation to the implementation of any of the Committee’s recommendations.”
Whelan said the committee received “extensive evidence” from consumer groups, regulators and industry that price comparison websites do not empower customers to choose the best product for their requirements.
“Insurance is highly complex,” he said. “You can’t compare insurance products as though you’re comparing cans of soft drink, and each insurer’s product is competitive on its features as well as its price.”
“ICA notes the recommendation relating to a price comparison tool, but believes enough evidence has already been provided to demonstrate a government-run aggregator would not stand up to a cost-benefit analysis.”