General insurance customers needed clear information about increased charges for their individual insurance policies, an Australian Competition and Consumer Commission report has found.
"Consumers need to know exactly why prices for particular, individual policies have risen so they can make an informed decision about renewals", ACCC Chairman, Professor Allan Fels, said today.
"This could be achieved by a note summarising last year's price, whether coverage had been extended or limited, and other factors, such as higher risks, which caused the higher premium".
Professor Fels was commenting on the ACCC's report, Insurance Industry and Market Pricing Review*.
"The ACCC welcomes the Government's decision for the ACCC to continue update the report and provide analysis of the competitiveness of the public liability and professional indemnity sectors of the market by July 2002.
"Clearly the current upheaval in the market makes a further report on this industry desirable.
"The ACCC believes the report will provide an important input into the debate on the costs drivers for public liability insurance to be considered at the Ministerial meeting to be held this week in Canberra".
Professor Fels said an important feature of the report is that it seeks to disaggregate the insurance experience. The insurance industry covers many different sectors and the situation of each is distinctive. In some cases they are experiencing very low returns at present but some, such as mortgage insurance and consumer credit insurance appear to be enjoying very high returns. Commercial motor vehicles and marine and aviation insurance are also experiencing a high outlook at present.
"The ACCC has expressed concern if large across the board premium increases, over that of general inflation, were attributed solely to the collapse of HIH Insurance or the events of 11 September 2001.
"Further, the ACCC believes such opportunistic pricing could not be continued in a competitive market.
"Until recently, a number of insurance companies have been chasing market share rather than managing risk in a sensible fashion, " Professor Fels said. "The ACCC is not advocating price controls on general insurance but believes companies should not try to justify price rises by using external factors rather than admitting past management mistakes".
The report did not seek to judge if particular classes of insurance had been charging too-high or too-low premiums, but noted that the general insurance industry as a whole had had low return on equity over the past nine years. Low returns had occurred due to a mix of factors for particular groups:
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inadequate premium rates (domestic motor vehicle insurance; fire and industrial special risks; professional indemnity; product and public liability; and travel)
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catastrophes such as Sydney hail storm and South East Queensland flood (fire and industrial special risks; domestic and commercial motor insurance; householders/homeowners insurance)
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realisation of the extent of past losses as liability provisions increase to reflect emerging claims (professional indemnity; product and public liability)
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low investment returns which represent a significant and important component of insurance profit (liability classes)
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increasing reinsurance premiums resulting from continuing low profitability of the international reinsurance market. While largely uninfluenced by domestic catastrophes, increased reinsurance rates have occurred at a similar time as domestic catastrophes (fire & industrial special risks; and householders/homeowners insurance)
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liquidation of the HIH Group potentially removing a barrier to price increases (professional indemnity)
"The ACCC believes consumers must receive simple information about the general trends for particular classes of general insurance, and the reasons behind the trend.
"Insurance companies should review and improve their inquiry and complaints handling systems to help consumers who want to query increases.
"The ACCC is suggesting that companies review the language used in insurance contracts to demystify the process for consumers, small business and community organisations. A checklist could detail the policy and outline what is, and importantly was it not, covered using simple language.
"Easier to understand policies will allow consumers to effectively compare the services offered by different insurers. Consumers will benefit from being able to choose the policy that suits their needs and the insurers who offer the most competitive services will also attract more customers.
"The ACCC believes policy renewals need to be forwarded to consumers in a timely manner so that any queries can be effectively dealt with without the risk to the consumer's policy coverage".
*The review was requested by former Minister for Financial Services and Regulation, Mr Joe Hockey, and received recently by current Minister, Senator Helen Coonan. It was recently forwarded to Senator Ian Campbell, Parliamentary Secretary to the Treasurer, and Senator Helen Coonan, Minister for Revenue and Assistant Treasurer.