In a win for consumers, insurers in New South Wales providing personal and small business home and contents and motor policies are now required to include last year’s premium in any renewal notice.
The NSW Emergency Services Levy Insurance Monitor, Allan Fels, says he has been advised that the same change, which takes effect on 1 July, will be made by insurers in other states.
Fels says: “Until now, insurance notices normally have not stated what the previous year’s premium was. Accordingly, consumers and small business owners don’t know how much the premium has gone up.
“Most are victims of a loyalty tax – that is, they pay far more in years two, three, four, five and so on, than in year one. And most people don’t know it.”
A study conducted by the Insurance Monitor found that consumers renewing home and contents insurance in year two pay 27 per cent more than new policy holders.
“The loyalty tax occurs when discounts are offered to attract new customers but premiums are increased at the first and subsequent renewals,” Fels says.
“The practice is deceptive because customers aren’t told. It falls short of community expectations, of the kind the Hayne Royal Commission said we should expect of financial institutions.”
Over the period analysed by Insurance Monitor, between July 2015 and September 2018, the difference between the price of new home and contents policies and renewals was 28.8 per cent.
The gap is smaller if it is adjusted for the change in the sum insured. However, the data for a number of insurers in the study point to a clear practice of escalating the sum insured on renewing policies each year.
“Increasing the sum insured each year can be important as a way to avoid under-insurance, but over-insurance can also be a problem for insurers,” the study says.