Consumer watchdog report finds insurers using price to deter customers in high-risk areas to manage their risk exposure.
Insurers are using price to deter customers in high-risk areas in an effort to manage their risk exposure, an Australian Competition and Consumer Commission has found.
The ACCC released the first interim report from the Northern Australia Insurance Inquiry on Tuesday, containing 15 recommendations for tax reform, transparency and risk mitigation.
The report revealed despite a public belief high costs were being used to subsidise other regions, most insurers were operating at a loss in northern Australia.
It also backed calls by the Insurance Council of Australia for State Governments to scrap stamp duty on home, contents and strata insurance.
ACCC deputy chairwoman Delia Rickard said address-based pricing, extreme weather events and cost of rebuilding all contributed to high premiums.
“Usually in the market, you expect people to be competing to get customers, to be reducing prices, improving quality,” she said.
“However, particularity in high-risk areas, we saw pricing being used to deter customers, to stop people reinsuring and to not take on new business so they could manage their risk.
“What we are hoping for is governments will talk to insurers about what mitigation works they think would be most useful, and, before they invest in mitigation, insurers will estimate the quantity that would help reduce premiums.”
Ms Rickard said recommendations made should be implemented immediately.
Insurance Council of Australia chief executive Rob Whelan said the ACCC’s findings were in line with recommendations from previous inquiries.
The inquiry was launched in May 2017 and is investigating matters such as insurance price and availability, market competitiveness, key cost components, regulatory issues and profitability of provision of insurance in northern Australia.
The ACCC will spend the next year researching other places in the world with high insurance premiums before releasing its next interim report in November 2019.
Submissions to the interim report are due in April.
REIWA Kimberley branch chairman Tony Hutchinson said increased insurance premiums in recent years continued to put pressure on the budget of residents and businesses in the north.
“The increases seem to have come after continuing disasters and floods on the east coast,” he said.
“Some people have been forced to forgo or reduce their property insurance due to affordability.
“There’s is no doubt (there is) a lack of competition between insurers and it’s interesting that the government stamp duty and GST add a considerable amount to premiums and should be made exempt.”
Broome Chamber of Commerce and Industry president Peter Taylor said the ACCC insurance inquiry confirmed that premiums in the bush were exorbitant.
“There is no justification for a year-on-year increase of 300 per cent for one Broome resident after seven years of no claims,” he said.
“Insurance is about spreading the risk across many policy holders but it appears insurance companies only want to spread the risk across regional Australia instead of the whole country.
“While the inquiry’s interim report is welcome, don’t hold your breath for an industry solution.” Mr Taylor said loyalty in the insurance market was overrated. “Start looking for the best deals going and don’t over insure,” he said.
“Talk to your local broker, check comparison sites. There is no reason to settle on a 300 per cent premium increase.”
Recent floods and cyclones have led to big rises in insurance premiums in the Kimberley.