Many brands, little choice in insurance

Four major insurers dominate the Australian general insurance market, which gives the appearance of choice with the offer of many brands, says the Productivity Commission in a report on competition in the financial system.

The four majors underwrite more than 30 brands while two of the smaller insurers underwrite 50 brands between them. One company underwrites 23 of 25 pet insurance brands.

In some areas of financial services, proliferation of products with slight variations in features has become a burden for providers as well as consumers, says the report.

Companies find themselves with dated products on old, legacy systems that they have to keep going for a small number of customers.

The report criticises insurers for providing poor quality information to consumers and says existing customers often pay higher premiums as insurers jostle to entice new customers.

It calls for premium renewal notices to include the previous year’s premium and the percentage increase.

It says insurers should publish on their websites all the brands that they underwrite, and supply that information to the Australian Securities and Investments Commission (ASIC) for it to publish on its website.

The economic advisor calls for a Treasury working group to examine add-on insurance, where it says there are “sharp practices” by some insurers.

Add-on insurance is typically sold with cars, houses (as lenders’ mortgage insurance) or with consumer credit, and is sold to people who are buying something else, rather than being sought by consumers.

The Commission says the claims payout ratio is low, with around 9 cents in the dollar paid out on the insurance sold by car dealers and 21 cents in the dollar for consumer credit.

ASIC has investigated add-on insurance but the Productivity Commission says the pace of reform has been “glacial”.

In a comment on the financial sector in general, the report says high market concentration does not necessarily mean that competition is weak, but “it is the way market participants gain, maintain and use their market power that may lead to poor consumer outcomes”.

The Commission does not believe that altering the structure of financial markets will improve consumer outcomes and instead calls for reforms that alter incentives to institutions in a way that bolsters consumer power.

August 2018