Competition an “illusion” in insurance

The Productivity Commission has taken aim at the insurance industry in its most recent report, criticising the sector’s heavy concentration, the poor quality of information provided to consumers, and the sharp practices adopted by some sellers of add-on products.

Released Friday, the commission’s report – Competition in the Australian Financial System – found there is a proliferation of brands in general insurance but far fewer actual insurers.

In the home insurance, domestic motor insurance, travel insurance, lenders’ mortgage insurance and reinsurance markets, the largest four firms (which are not always the same four) hold market shares in excess of 70%.

According to the report, the domestic motor insurance, travel insurance, lenders’ mortgage insurance and reinsurance markets are particularly concentrated, and while the domestic home insurance market is less concentrated, the two largest firms still account for more than half the market.

However, it also noted that, because many insurers supply their products under multiple brands, consumers may see more of an “illusion of robust competition” than is reality.

The report also made a number of recommendations, including:

• Renewal notices for general insurance products should transparently include the previous year’s premium and the percentage change to the new premium. This policy should commence by the end of 2019 and be enforced by ASIC.
• In addition to specifying which insurer underwrites their products, each insurance brand should specify on their website any other brands that are underwritten by the same insurer, for that particular form of insurance.
• Insurers should provide an upto-date list of the brands they underwrite to ASIC. ASIC should transparently publish this information as a list on its website.
• ASIC should proceed, as soon as possible, with its proposal to mandate a deferred sales model for all sales of addon insurance by car dealerships. The deferral period should be a minimum of seven days from when the consumer applies for or purchases the primary product. Following implementation, the Australian Government should establish a Treasury-led working group with the objective of comprehensively extending the deferred sales model to all other add-on insurance products, with the model set in legislation and ASIC empowered to offer exceptions on a case-by-case basis.

Related stories:
"Insurance must go beyond risk transfer"
Beazley offers insight on email attacks