Strident insurance critic Allan Fels has accused home and contents insurers of imposing a “loyalty tax” on long-term policyholders – an accusation that has stirred angry reactions from within the industry.
Professor Fels makes the allegation in his latest quarterly report as NSW Emergency Services Levy (ESL) Insurance Monitor.
He says the average base premium for renewals in NSW is 27% higher than for new policies, alleging that insurers exploit repeat customers while making generous offers to win new ones.
insuranceNEWS.com.au understands insurers are furious about how the data they are obliged to share with Professor Fels is being used, and the report’s “lack of rigour”.
In his role as Insurance Monitor Professor Fels – a former chairman of the Australian Competition and Consumer Commission – has the power to collect data to check savings from the now-reversed abolition of the ESL are passed on to consumers.
Insurers are concerned that this data is now being used as a stick to beat them with, and that the comparisons made by Professor Fels are not valid.
Industry sources told insuranceNEWS.com.au the data they provide to him does not distinguish between renewals and new business, and that this was then compared with quotes from online comparators, which do not cover the whole market.
Rather than a “loyalty tax”, the industry paints an alternative picture of a “new customer discount” that encourages customers to shop around and boosts competition.
The Insurance Council of Australia told insuranceNEWS.com.au it has not been shown the data or research and has no way of verifying Professor Fels’ conclusions.
“Premiums differ between new policies and renewals for many reasons,” a spokesman said. “Insurers may offer discounts to new customers to attract new business and increase market share.
“This is competition in action and may encourage consumers to compare the value of products in the market, and increase the affordability of insurance for some customers.”
Professor Fels agrees that shopping around is the best course of action for consumers.
“This really translates to a simple message for consumers: don’t assume you are getting the best deal with your renewals,” he said. “Always check the prices of other suppliers, and if your insurer is out of line, go elsewhere.”
He says the discrepancies support his push to make all insurers publish policyholders’ prior-year premiums on renewal notices, to “promote greater pricing transparency and encourage consumers to question the price they are being offered to renew”.
It follows similar action in the UK, where the Financial Conduct Authority last year mandated prior-year premium reminders. In NSW Professor Fels has told insurers they must show prior-year premiums on renewal notices by July 1 next year.
NSW Innovation and Better Regulation Minister Matt Kean says the premium differences are “simply unacceptable”.
“Loyal customers should be rewarded, not ripped off by their insurance providers,” he said.
Professor Fels was engaged to oversee removal of NSW’s ESL in 2016, before the State Government backflipped last year on plans to shift from the insurance tax to a property-based charge.
Post-backflip, he oversees insurers’ application of the ESL, to ensure there is no overcollection.
The monitor’s latest data shows insurers overcollected ESL by $1.77 million in the 2016 financial year and undercollected by $61.47 million in the 2017 financial year.
Professor Fels’ report says ESL rates fell in the September quarter, “but some customers continued to experience increases… compared to last year due to the re-establishing of ESL rates by insurers occurring at various stages”.
It notes he has “substantially completed” his investigation of insurance companies that overcollected ESL in the 2016 and 2017 financial years.
“Investigations for an additional 17 companies were completed during the quarter, taking the total number of completed company investigations to 159.”
At the end of the September quarter 31 refund undertakings representing almost $1.5 million had been accepted.