The ACCC commenced its Northern Australia Insurance Inquiry on 1 July 2017. This is a short update of our insights to date, lines of further investigation, and preliminary observations from data analysis of the home, contents and strata insurance markets in northern Australia.
Around 150 people participated in the eight public forums that the ACCC held in Townsville, Cairns, Rockhampton, Mackay, Darwin, Alice Springs, Broome and Karratha through November and December 2017 to hear directly from residents. Over 280 individuals, groups and businesses with an interest in the insurance industry and northern Australia made submissions to our Issues Paper, which was released in October 2017.
Local residents and property owners have expressed frustration, confusion and anxiety about the affordability and availability of insurance. Some participants said that insurance premiums are rising significantly and people and families are facing increasing financial distress. Reports of renewal notices for home and contents premiums exceeding $10 000 per year were common, especially in the west.
Communities told us price rises are not well-understood and seemingly unjust, particularly for households who have not made a claim and believe they live in an area that has not, or would not, be affected by cyclone or flooding. We similarly heard people say they are not being rewarded by insurers with reduced premiums for mitigation activities to improve the resilience of their properties. This seems to contrast feedback from industry that insurers are increasingly taking into account the circumstances of individual properties.
People say they are taking action to lower their premiums, for example by shopping around and raising their excesses, but consider there is little choice, especially in strata insurance markets and regional towns. The compulsion to insure, whether by law for strata properties or a condition of a mortgage imposed by a lender, was also a theme of concern.
Submissions from consumer representative groups shared comparable stories and similarly raised the need for more transparency in premium pricing and better disclosure of information to consumers. They continue to advocate for the removal of the exemption of insurance from unfair contract terms laws.
The headline concerns we heard about engaging in home, contents and strata insurance markets are, in many regards, consistent with concerns the ACCC hears in other critical markets such as energy, telecommunications and financial services.
In parallel to our public consultation, we have obtained information from insurers using our compulsory information gathering powers, which has allowed us to gain unique insight into the home, contents and strata insurance markets. We have received a significant volume of documents from the insurers to whom we served notices. Our review of this information is underway but already we can make useful observations about the market.
Our analysis has so far focused on insurance premiums paid by consumers and market share trends, and we set out some preliminary observations in this report. We have not yet completed our analysis of the cost to insurers of supplying insurance in northern Australia, for example through claim payouts and other significant expenses. We therefore do not make any comment about the profitability of providing insurance in northern Australia in this report, however in future reports we expect to do so. The observations discussed in this report are preliminary and may be revised in subsequent reports based on further data collection and analysis.
The vast majority of home, contents and strata policies in northern Australia are supplied (or underwritten) by eight insurers. All eight insurers operate in north Queensland, and seven operate in north Western Australia and six in the Northern Territory. Only postcodes for Nullagine and Telfer in Western Australia and Corfield in Queensland have fewer than four insurers supplying insurance.
The eight main insurers currently supply home and contents insurance under 45 brands throughout northern Australia, although not all brands operate in all postcodes. The average number of brands per postcode varies, from 18 in the Northern Territory, to 20 in north Western Australia and 23 in north Queensland. The number of brands used by the insurers to sell home and contents insurance can make it look like there are more suppliers than there actually are. However our analysis suggests that premiums across a single insurer’s brands can vary considerably.
Northern Australian home and contents insurance markets are a small part of the national market. While northern Australia makes up only 5 per cent of the number of policies, it accounts for about 10 per cent of premium revenue.
Currently, the majority of strata insurance policies are provided in north Queensland (6000), followed by Northern Territory (1400). There are very few strata policies (130) in north Western Australia.
Between 2007–08 and 2016–17, average home and contents premiums, adjusted to account for changes in the sum insured, have increased by between 23 and 67 per cent in northern Australia, and by 16 per cent in the rest of Australia. During the same period, strata insurance premiums (per sum insured) rose by between 60 and 80 per cent in north Queensland and north Western Australia but remained relatively flat in the Northern Territory and the rest of Australia.
In 2016–17, the average annual home and contents premium in northern Australia was $2000, which is about double the average for the rest of Australia. North Western Australia was the highest at $2700 per year. Strata insurance premiums in northern Australia were more than double the premiums in the rest of Australia. However these figures are averages only and premiums for home and contents insurance are not uniform across northern Australia, or for all consumers within each region. The highest cost regions appear to be concentrated along the coast of north Queensland, far north Queensland, the Pilbara, Darwin and central Australia.
In 2016–17, the difference between insurers’ pricing appears to be greater in northern Australia than in the rest of Australia. Premiums for combined home and contents insurance in northern Australia can vary between insurers by as much as $3.40 per $1000 insured, compared to $0.90 per $1000 insured in the rest of Australia.
While these observations lend support to the general trends and concerns raised through the public consultation, the stories of premium quotes and movements shared by individuals during our consultation was often more extreme than these averages.
As we investigate and monitor the industry over the next two and half years, we expect to be able to shine more light on a range of important questions that people in northern Australia are asking, such as how are insurers setting premiums? Are insurance markets competitive? What is the role or significance of commission payments? How do insurers account for mitigation initiatives? And are insurers communicating effectively with consumers about their insurance?
We will provide a further report in November 2018. This report will be important. It will set out to the people of northern Australia how we believe the home, contents and strata insurance markets are really working. It will also make initial recommendations to government and industry about what we see as any opportunities for change, which we expect to build on in two further reports in November 2019 and 2020.