Report highlights 'illusion of competition' in financial services

Report highlights 'illusion of competition' in financial services | Insurance Business

Report highlights

A draft report by the Productivity Commission has put the spotlight on what it called the “illusion of competition” in financial services, and proposed measures on what could be done to deal with it.

The “illusion,” according to the report, refers to the fact that consumers are tricked into thinking that competition is fiercer than it actually is through the use of multi-brand strategies. And while It's not illegal for a company to own different brands; and the brands do, in fact, sell slightly different products at different prices, they are clearly not set up to compete away their owner's profits.

In an extreme case cited by the commission, 20 of the 22 different brands of pet insurance on the market are underwritten by the same insurer, the Hollard Insurance Company. In banking, there's Westpac, which sells its products under brands such as St George, Bank of Melbourne, and BankSA; and National Australia Bank that has its own digital offshoot, Ubank.

The Productivity Commission is particularly concerned about how the practice happens in insurance, where although dozens of firms appear to compete, in reality more than 70% of the market for home, motor, travel, and mortgage insurance is owned by Australia's largest insurers – IAG, QBE, Suncorp, and Allianz, which have 30 brands between them, Fairfax Media reported.

With such a small handful of players dominating the market, businesses would be more inclined to compete not on price, but through marketing or subtle differences in the cover they offer.

The review and advisory body is concerned that this would allow the firms to trick consumers by charging more than they would otherwise. The report has also noted, however, the decreasing profitability in the insurance industry, which may point to competition, Fairfax said.

To deal with the illusion in the insurance industry, the commission suggested that insurers' websites clearly communicate all the brands the insurer underwrites, as well as renewal notices including last year's premium and the percentage change.

Insurers were also advised to publish more information on their insurance bills to give people a nudge to think about whether or not they are getting a good deal – though it is unsure if this measure would be enough to drive a significant lift in competition, the report said.

 

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