The Office of the Fire Services Levy Monitor (FSLM) has released a report today about Australia’s home insurance industry, which discusses the problems with disclosure and competition in the insurance industry. FLSM’s report, entitled “Enhancing the consumer experience of home insurance: Shining a light into the black box” finds that significant reforms are needed to improve competition and consumer outcomes.
The Financial Rights Legal Centre operates the Insurance Law Service, a national free legal advice hotline for consumers with insurance problems. Since its inception in 2007 the ILS has taken over 18,500 calls for advice and has developed substantial expertise in consumer insurance issues. From our experience most consumers have no real awareness of the coverage being provided by their insurance because the disclosure process for insurance is poor and ineffective. The Product Disclosure Statement (PDS) is the means of disclosure for the terms of an insurance contract. The PDS is often very long and intimidating. There is no standardised form for presentation. There has been no testing to optimise disclosure for consumers. In contrast, in the area of credit, significant research and testing has been conducted to improve disclosure for consumers.
“The report is timely” says Katherine Lane, Principal Solicitor of the Financial Rights Legal Centre. “The likely escalation in natural disasters means that it is essential that industry is competitive and disclosure delivers the most suitable cover for the consumer considering their risk.”
Lengthy disclosure and unfair contract terms can make it hard for consumers to compare products. Insurers should be clearer about the pricing structure and the cost of insurance should be more transparent. If a consumer is aware of component pricing and the various loadings for risk, plus the actual risk they face, then they will be better placed to choose adequate cover for a competitive price. If all insurers were required to be more transparent about their pricing then competition would be more robust and there would be a fairer playing field for both consumers and insurers thereby enabling useful competition.
Consumer advocates have long advocated for national unfair terms consumer protections to be extended to home insurance. The Financial Rights Legal Centre has written to past and present Federal Consumer Affairs Ministers recommending unfair contract terms legislation be extended to the insurance industry, legislation which that has applied in all other consumer sectors since 2011. Doing so would improve the fairness of insurance contract fine print—making policies easier to read and compare, giving consumers stronger protection under the law, and stimulating real competition.
The Financial Rights Legal Centre supports the following reforms to drive competition and benefit consumers:
• simplifying and improving product disclosure;
• improving presentation of prices, for example, including last year’s premium on policy renewal notices to encourage consumers to shop around;
• encouraging better explanations of why premiums have changed;
• clearer explanations of the risks faced by the consumer as assessed by the insurer;
• unfair terms legislation that has been through a rigorous consultation process to be urgently enacted; and
• reducing the incidence of under-insurance by informing consumers about increases to costs of rebuilding or encouraging total replacement cover so consumers aren’t short changed when making a claim.
The Financial Rights Legal Centre is a beneficiary of disbursement of over-collected fire services levies, as agreed between insurers and the Fire Services Levy Monitor, and was selected as having the capacity to represent the interests of consumers of insurance.
The FSLM’s report is available here: http://www.firelevymonitor.vic.gov.au/home/news+and+information/publications/publication+shining+a+light