Consumers left in the dark about steep hikes to insurance premium
- Replies 12
When Michele Vanderlanh Smith discovered her annual home and contents insurance premium had jumped by 600 per cent, she thought it must have been a mistake.
In just 12 months, Westpac's insurance arm, underwritten by Allianz, had lifted her premium from $728.16 to $5,345.88.
Living on the first floor of an inner-city Sydney apartment block, not prone to flooding, she said she couldn't believe the explanation her contents insurer gave.
"The [contents] insurer basically justified the $5,000 increase by saying that my property's a flood risk," she told ABC News.
"And, based on their national modelling and commercially sensitive information, et cetera, I wasn't entitled to have access to that data."
In contrast, the cost of her building's strata insurance had barely moved.
Westpac's insurance arm also argued she had "consented" to the new premium because her payments were set to automatically debit.
When Ms Vanderlanh Smith said she had only set up automatic payments while working overseas because she could not access her mail during this time, the insurer would not budge.
Instead, she was told she would need to obtain a hydrologist's report at her own expense, if she wanted to challenge the premium increase.
"It's impossible for consumers to know if they're being charged a fair price," she said.
"The pricing algorithms insurers use are commercial in confidence — it is a total black box.
"If your premium doubles from one year to the next, it's really hard to understand whether or not you are paying a fair price."
The centre's Insurance Law Service takes 100–150 calls a week, often from people reporting premium increases of 30–50 per cent.
Some callers, like Ms Vanderlanh Smith, have faced rises of several hundred per cent.
"Insurers say they're not price gouging," Ms Davis said.
"But again, they don't share any tailored information with their customers about individual risk on people's homes."
She said the law centre sees examples every day of "insurers simply not meeting community expectations".
"We're still getting calls from people whose claims haven't been appropriately handled in the 2022 floods.
"Now people from Cyclone Alfred are experiencing significant delays, or their vulnerability hasn't been identified. This is commonplace."
The ACCC's latest monitoring report found the government's cyclone reinsurance pool has moderated price rises in cyclone-prone areas, but across much of the country premiums remain high and continue to climb.
Craig Bennett, director at S&P Global Ratings, said ASX-listed insurers including Suncorp, QBE and IAG were enjoying "very, very solid results".
"You've seen a lot of premium rate rises come through in the last three to five years," he said.
"They're earning through those now … that's feeding into bottom-line results."
But he warned affordability pressures were mounting for insurance customers.
"You've seen price increases well over, probably, three times the rate of growth of wages over the last three to five years.
"You're seeing not only less new business, but also people winding back cover and retaining more risk themselves."
Consumer groups have argued households are right to question whether they are paying fair prices — or simply funding big returns for shareholders.
But Ms Davis said customers unhappy with premium hikes have limited recourse.
The Australian Financial Complaints Authority (AFCA) does not have the power to decide whether an insurer has charged an accurate premium.
"Really, as lawyers, mostly what we tell people is that you need to shop around. It's completely up to an insurer how they price you," she said.
AFCA will occasionally investigate if an insurer fails to explain a sudden increase, but "very few of those complaints ever make it through".
Even then, she said, "an insurer can provide a lot of detailed information to AFCA that the complainant will never be allowed to see".
That was the case for Ms Vanderlanh Smith when she took Allianz to AFCA.
The complaints body refused to release the modelling Allianz used to justify the increase, then sided with the insurer, noting it had limited jurisdiction and there was no evidence of an error in calculating the premium.
In response to questions from the ABC, Allianz said it could not comment on individual cases but defended its approach.
"In these cases, it was necessary to adjust premiums to accurately reflect the updated flood risk assessment and ensure adequate coverage."
Consumer advocates are pushing for systemic reform, including an independent national price monitor and guaranteed discounts for home owners who invest in resilience upgrades.
"We want to see big uplifts in transparency," Ms Davis said.
"They want to know which of those risks are changing, how they've been priced and whether that pricing is fair.
"Most of our wealth and most of our retirement planning is wrapped up in our homes, and that means that adequate insurance coverage for our homes is more and more an essential service," Ms Davis said.
"And when something becomes an essential service, we think that means it deserves better pricing oversight," she said.
Insurance Council of Australia chief executive Andrew Hall said some insurers already offer discounts for home improvements, but he rejected calls for a national price monitor and the idea insurers are profiteering.
Instead, he pointed to state taxes, which he said can add hundreds of dollars to average premiums.
"We could employ hundreds of public servants to be looking at prices every day, but I would rather see tax reform happen in this country.
"I would rather see money being invested in risk reduction so that homes are built in safe locations and allow insurance to get on and do what it does best, which is be there for when the unexpected happens."
He also urged consumers to shop around.
"It's a very competitive market in Australia," he said, predicting premiums would begin to ease in line with inflation.
"What we are seeing globally is the cost of reinsurance moderating and in some areas reduce," Mr Hall said.
"I suspect what we will see in the coming 12 to 18 months, bar another large weather event, is insurers putting more effort into acquiring customers — and that will be a good thing in terms of pricing."
The ABC asked Suncorp, QBE and IAG whether they were price gouging. All three said they recognised household cost pressures but insisted premiums are set on risk, and called for greater investment in mitigation.
"It's an easy thing to say to people when you don't want the accountability," she said.
"There is no price transparency and no simple way to compare premiums.
"Insurers are supposed to protect you from disaster, but they're becoming the disaster."
By business reporter Rhiana Whitson
In just 12 months, Westpac's insurance arm, underwritten by Allianz, had lifted her premium from $728.16 to $5,345.88.
Living on the first floor of an inner-city Sydney apartment block, not prone to flooding, she said she couldn't believe the explanation her contents insurer gave.
"The [contents] insurer basically justified the $5,000 increase by saying that my property's a flood risk," she told ABC News.
"And, based on their national modelling and commercially sensitive information, et cetera, I wasn't entitled to have access to that data."
Michele Vanderlanh Smith was shocked to discover her insurer had hiked her premium from $700 to $5,000 a year. (ABC News: John Gunn)
In contrast, the cost of her building's strata insurance had barely moved.
Westpac's insurance arm also argued she had "consented" to the new premium because her payments were set to automatically debit.
When Ms Vanderlanh Smith said she had only set up automatic payments while working overseas because she could not access her mail during this time, the insurer would not budge.
Instead, she was told she would need to obtain a hydrologist's report at her own expense, if she wanted to challenge the premium increase.
'A black box' for consumers
Julia Davis from the Financial Rights Legal Centre said households are facing steep hikes with little or no explanation."It's impossible for consumers to know if they're being charged a fair price," she said.
"The pricing algorithms insurers use are commercial in confidence — it is a total black box.
Home owners are scrambling for more details as insurance premiums continue to rise. (AAP: Paul Miller)
"If your premium doubles from one year to the next, it's really hard to understand whether or not you are paying a fair price."
The centre's Insurance Law Service takes 100–150 calls a week, often from people reporting premium increases of 30–50 per cent.
Some callers, like Ms Vanderlanh Smith, have faced rises of several hundred per cent.
"Insurers say they're not price gouging," Ms Davis said.
"But again, they don't share any tailored information with their customers about individual risk on people's homes."
She said the law centre sees examples every day of "insurers simply not meeting community expectations".
"We're still getting calls from people whose claims haven't been appropriately handled in the 2022 floods.
"Now people from Cyclone Alfred are experiencing significant delays, or their vulnerability hasn't been identified. This is commonplace."
Julia Davis is a senior policy officer from the Financial Legal Rights Centre. (ABC News: Scott Preston)
Profits surge at major insurers
The frustration comes as Australia's biggest insurers post bumper profits, fuelled by years of premium increases and a relatively quiet year for natural disasters.The ACCC's latest monitoring report found the government's cyclone reinsurance pool has moderated price rises in cyclone-prone areas, but across much of the country premiums remain high and continue to climb.
Craig Bennett, director at S&P Global Ratings, said ASX-listed insurers including Suncorp, QBE and IAG were enjoying "very, very solid results".
"You've seen a lot of premium rate rises come through in the last three to five years," he said.
"They're earning through those now … that's feeding into bottom-line results."
But he warned affordability pressures were mounting for insurance customers.
"You've seen price increases well over, probably, three times the rate of growth of wages over the last three to five years.
"You're seeing not only less new business, but also people winding back cover and retaining more risk themselves."
Few options for customers
Consumer groups have argued households are right to question whether they are paying fair prices — or simply funding big returns for shareholders.
But Ms Davis said customers unhappy with premium hikes have limited recourse.
The Australian Financial Complaints Authority (AFCA) does not have the power to decide whether an insurer has charged an accurate premium.
"Really, as lawyers, mostly what we tell people is that you need to shop around. It's completely up to an insurer how they price you," she said.
AFCA will occasionally investigate if an insurer fails to explain a sudden increase, but "very few of those complaints ever make it through".
Even then, she said, "an insurer can provide a lot of detailed information to AFCA that the complainant will never be allowed to see".
That was the case for Ms Vanderlanh Smith when she took Allianz to AFCA.
The complaints body refused to release the modelling Allianz used to justify the increase, then sided with the insurer, noting it had limited jurisdiction and there was no evidence of an error in calculating the premium.
In response to questions from the ABC, Allianz said it could not comment on individual cases but defended its approach.
"In these cases, it was necessary to adjust premiums to accurately reflect the updated flood risk assessment and ensure adequate coverage."
Calls for greater pricing transparency
Consumer advocates are pushing for systemic reform, including an independent national price monitor and guaranteed discounts for home owners who invest in resilience upgrades.
"We want to see big uplifts in transparency," Ms Davis said.
"They want to know which of those risks are changing, how they've been priced and whether that pricing is fair.
"Most of our wealth and most of our retirement planning is wrapped up in our homes, and that means that adequate insurance coverage for our homes is more and more an essential service," Ms Davis said.
"And when something becomes an essential service, we think that means it deserves better pricing oversight," she said.
Insurance Council of Australia chief executive Andrew Hall said some insurers already offer discounts for home improvements, but he rejected calls for a national price monitor and the idea insurers are profiteering.
Instead, he pointed to state taxes, which he said can add hundreds of dollars to average premiums.
"We could employ hundreds of public servants to be looking at prices every day, but I would rather see tax reform happen in this country.
"I would rather see money being invested in risk reduction so that homes are built in safe locations and allow insurance to get on and do what it does best, which is be there for when the unexpected happens."
He also urged consumers to shop around.
"It's a very competitive market in Australia," he said, predicting premiums would begin to ease in line with inflation.
"What we are seeing globally is the cost of reinsurance moderating and in some areas reduce," Mr Hall said.
"I suspect what we will see in the coming 12 to 18 months, bar another large weather event, is insurers putting more effort into acquiring customers — and that will be a good thing in terms of pricing."
The ABC asked Suncorp, QBE and IAG whether they were price gouging. All three said they recognised household cost pressures but insisted premiums are set on risk, and called for greater investment in mitigation.
A broken system?
Despite finding at least three other insurers offering the same coverage for as little as $1,000 — one-fifth of Allianz's price — Ms Vanderlanh Smith said the burden shouldn't fall on consumers to avoid overpaying."It's an easy thing to say to people when you don't want the accountability," she said.
"There is no price transparency and no simple way to compare premiums.
"Insurers are supposed to protect you from disaster, but they're becoming the disaster."
By business reporter Rhiana Whitson
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