The Senate inquiry committee into the insurance was formed in November 2016. It was tasked with examining the rising cost of insurance cover over the past decade in comparison to wage growth, competition and transparency in the market and the potential benefits of establishing an independent government-run insurance comparison service.
Lively public hearings took place in Sydney and Melbourne and now the committee has published its report called ‘Sapping the consumers will to compare.’
There are 15 recommendations many of which are about areas unrelated to motor insurance. However, policy comparison on home, motor and other insurance was a big focus of the report. Many of the inquiry submissions were vehemently against comparison websites. While the committee acknowledges the strong concerns: ‘in particular the risk that such a service could lead to consumers focusing on product price rather than value,’ the report recommends the Government carry out a detailed proposal for a “more simplified” insurance comparison tool.
Product disclosure statements (PDS) were directly in the line of fire and considered unfit for purpose. ‘The committee is deeply concerned by the apparent lack of transparency in the general insurance industry with regard to product disclosure, and the detrimental effect this has on consumers’ ability to effectively compare similar insurance policies,’ the report says.
It recommends requiring insurers to disclose the previous year’s premium on renewal notices and provide an explanation of premium increases when requested by policyholders.
It also says component pricing of premiums should be available to policyholders.
An independent review of the standard cover regime is also recommended, along with the development of standardised definitions of key terms for general insurance.
The committee also recommends the removal of general insurers’ exemption from unfair contract terms laws – which the insurers fiercely oppose.
VACC says it concurs with the Inquiry in that general insurers are not informing consumers enough about their motor vehicle policies which leads to an inability for them to compare products. More needs to be done, said John Guest, VACC Industry Divisions & Policy Leader.
Guest is deeply concerned by the apparent lack of transparency in the motor vehicle insurance industry with regard to product disclosure, and the detrimental effect this has on consumers' ability to effectively compare similar insurance products and policies. A lack of process and transparency also leads to unnecessary conflict between insurers and repairers creating unnecessary delays in the key-to-key repair process. This is where insurers and repairers in the most part come together to the mutual benefit of serving the consumer/policyholder.
VACC supports a system whereby consumers and small business body repairers can get on-line to access insurance product information. Consumers should be able to go to a single landing page and compare motor vehicle PDS documents with key information about such things as price, access amounts and service provision, and decide which PDS suits them best. This can be determined by letting the consumer know up-front what they are covered for at the moment of truth. Consumers need to know the extent to which they are covered by choice of repairer, towing coverage immediately after accident through to the place of storage they determine and the consequences if the policyholder then decides to have the vehicle transferred elsewhere. They need to know whether they are required to pay the tow operator, or whether the insurer will make arrangements to pay the tow operator; or whether the insurer expects the body repairer to pay the tow operator at the gate as proxy for the consumer or insurer.
Critically, and a matter Mr Gerard Brophy from the Consumer Law Action Centre (CALC) alluded to in his presentation to the Senate Inquiry, is the reasons for cash settling the policyholder to be made clear. VACC says consumers need to be protected here and not exploited by a failure of insurance assessors to apply Realistic Times and Realistic Rates (RTRM) calculations to the cash settlement amount.
Guest also says the consumer/policyholder should be handed the assessor’s evaluation as well as the first and second repairers’ estimates. All of which should be produced by the insurer’s assessor and the body repairer applying to the best of their capability a RTRM calculation. The insurer should never present a Funny Time Funny Money (FTFM) cash settlement amount. To pass the RTRM test, the cash settlement amount needs to be a fully costed business hourly rate required to support the cash settlement amount. This should be based on industry recognised repair times and a realistic hourly rate that reflects the actual costs of running the repair facility.
VACC continues to advocate for legislative change to remove the exemption for general insurers to unfair contract term laws. Guest said “this is necessary to ensure that the annual threshold for standard form contracts is sufficient to allow small business operators such as body repair businesses to fit within the legislation”. The current annual threshold is designed for micro business, and thus falls short for most, if not all businesses operating in the automotive industry.
“It is for the reasons of bringing insurers to account by including them in the legislation, and making sure the unfair contract term legislation is fit for purpose, that VACC welcomes and supports the recommendations”, Guest said.