David Murray. Photo: Christopher PearceAustralian insurers need to improve their guidance and disclosure when talking to consumers about the replacement value of their home in the event of a claim, or face government intervention forcing them to do so.
That is the recommendation from David Murray’s financial system inquiry, which recommended the federal government enact laws enforcing improved disclosure if significant progress is not made quickly by the industry.
“Government should consider introducing a regulatory requirement to provide this guidance at the point of renewal or on entering into a contract with a new insurer,” the report said.
Current regulation allows insurers to provide guidance on the replacement value of homes or contents without having to comply with personal advice rules.
The inquiry argued that this was not working and insurers were not typically providing guidance on replacement values.
“The inquiry believes that commercial disincentives mean insurers are reluctant to provide this type of guidance,” it said. Although many insurers provide online calculators to estimate replacement value, insurers typically refrain from giving guidance on the replacement value either over the phone or on a renewal notice.
The recommendations come after the federal government announced changes to allow unregulated foreign insurers to sell home cover in areas where prices are deemed to be high, such as North Queensland.
However, research from the Australian Government Actuary released last week found insurers were paying about $1.40 in claims for every $1 in premiums they received from customers living in the cyclone-prone area. Insurers argue that if the government allows unregulated players to enter the market Australians might not be able to sue their brokers if their insurers fail.
Insurance Australia Group managing director Mike Wilkins said he understood the inquiry’s recommendation for greater guidance.
“It highlights the importance of consumers making an informed choice by taking into account a product’s features and benefits as well as cost,” he said.
The Insurance Council of Australia, which represents some of the country’s biggest insurers, including Suncorp Group and IAG, said its members were working with the corporate regulator on whether they were able to provide enhanced advice.
“The uncertain Corporations Act boundary between personal and general advice discourages general insurers from providing more tailored information to consumers about their policies.”