News items of interest relating to the Monitor, the ESL (and related reforms) and consumer-protection issues in property insurance are provided below.
The Monitor's Price comparison order & other media
Below is a selection of media following the issue of the Monitor's Media Release: Win for consumers as NSW Regulator requires insurers to display previous year's premium on all renewal notices - 26 June 2019
Channel 7 - 31 -7-19/1-8-19
Insurance companies have a habit of quietly raising our premiums each and every year.
Now, new laws require policy renewal notices to clearly spell out any increase and you might be surprised to see the price you pay for loyalty.
The NSW insurance monitor Prof Allan Fels has forced insurers, home and contents motor, and health to print, just how much they've increased the year's premiums from the previous one. It's the result of a five year fight to help eradicate the so called Loyalty Tax, that Professor Fels says costs consumers billions of dollars a year.
Channel 7: 27-6-19
Australian consumers loyal to their insurance, telco and energy providers are collectively paying $3.6 billion more than they need to every year.
The staggering figure was revealed by the NSW insurance monitor, Professor Allan Fels, on Wednesday.
But the figure applies to some 10 million households across Australia on a wide range of bills.
The Conversation: 15-7-19
by: Prof. Allan Fels AO, ESL Insurance Monitor
by: Prof. Allan Fels AO, ESL Insurance Monitor
Radio - Interviews
ABC - Radio National Drive: 3-7-19
Audio: Public awareness campaign
Tackling the loyalty penalty in the UK
Financial Conduct Authority - General Insurance Market Study (October 2019)
In October 2019, the Financial Conduct Authority published the interim report of its market study into the pricing of home and motor insurance.
A copy of the report is attached below.
The FCA estimates that around 6 million policyholders in the UK pay high prices and are not getting a good deal on their insurance. If those customers paying high premiums paid the average premium for their risk, they could save around £1.2 billion a year. This affects all types of customers.
Some of the FCA's key findings include:
- Insurers often sell policies at a discount to new customers and increase premiums when customers renew, targetting increases at those less likely to switch
- longstanding customers pay more on average, but even some people who switch pay higher prices
- From the FCA's consumer research, 1 in 3 consumers who paid high premiums showed at least one characteristic of vulnerability. For consumers who bought combined contents and building insurance, lower income consumers (below £30,000) pay higher margins than those with higher incomes.
- People who pay high premiums are less likely to understand insurance or the impact that renewing has on their premium
- Most firms, when setting a price, include their expectations of whether a customer will switch or pay an increased price. This is not made clear to the customer.
- Firms engage in a range of practices to raise barriers to switching.
- Many consumers who switch or negotiate their premium can get a good deal.
The FCA has indicated it is considering whether it may be appropriate to tackle the problem by banning or restricting practices like raising prices for consumers who renew year on year or requiring firms to automatically move consumers to cheaper equivalent deals.
Competition & Markets Authority - Progress Update (19 June 2019)
On 19 June 2019 the CMA released an update on its progress with tackling loyalty penalty issues following its December 2018 investigation into loyalty penalties in five markets, including home insurance. The report highlights work currently being undertaken by the Financial Conduct Authority (FCA) and Ofcom, and welcomes the UK Government's proposal to provide the regulator with greater powers to intervene where businesses are causing consumer harm.
The CMA has called on regulators to recognise the scale of the loyalty penalty and its impact in their markets, and to design effective interventions that help those consumers who are most vulnerable.
The CMA states:
"In insurance, it appears that many longstanding customers are paying more than new customers with prices increasing year after year. We recommended that the FCA should closely investigate these types of pricing practices and consider interventions that limit this type of ‘price walking’. We understand that the FCA is currently looking at these issues as part of its general insurance market study and we look forward to its interim findings expected later this year. We expect the FCA to look at all feasible options that provide an effective response to address the problems in this market."
The CMA commented on its proposed reforms and the key principles it had established to stop unacceptable business practices relating to unfair renewals, and has continued to develop these alongside its enforcement work.
The CMA has encouraged businesses to treat their customers fairly, noting that "they must do what they can now to ensure that their loyal customers are not unfairly penalized ..."
Access the CMA 6-month progress update here.
UK Government response to CMA on the loyalty penalty (17 June 2019)
On 17 June 2019, the UK Business Secretary Greg Clark responded to the CMA's December 2018 report. The response affirms the UK government's commitment to ensuring that Government and regulators now take further action on the CMA recommendations to tackle harmful business practices and deliver better outcomes for consumers. In stopping harmful business practices, the government endorsed cross-market principles of good business practice in dealing with customers and "expects these to guide regulators in their approach to enforcement:
- Exit/entry equivalence: people must be able to exit a contract at least as easily as they can enter it;
- Auto-renewal should generally be on an ‘opt-in’ basis upfront, and include a clear and prominent option without auto-renewal in most markets;
- Exit fees should not be used after any initial minimum / fixed term;
- Auto-renewal onto a fresh fixed term should not generally be used;
- Customers must be sufficiently informed about the renewal and any price changes (through sufficient notifications) in good time;
- Switching should generally be managed by the gaining supplier so that customers do not have to contact their existing supplier if they want to move."
The response states the government is willing to consider further legislative or regulatory change to ensure the CMA and regulators have the tools they need, and will consider in an upcoming Consumer White Paper, proposals to strengthen the UK's system of public enforcement of consumer law, including "empowering the CMA to decide itself whether consumer protection law has been broken and then impose fines for wrongdoing directly".
Access the UK government's response to the CMA report here.
CMA investigation into loyalty penalty in five markets (19 December 2018)
The UK Competition and Markets Authority (CMA) has investigated concerns raised by Citizens Advice in a ‘super-complaint’, that companies penalise existing customers by charging them higher prices than new customers. The investigation has found that the loyalty penalty is significant and impacts many people, including those who can least afford it.
The super-complaint by Citizens Advice highlighted pricing practices in five markets: mobile, broadband, cash savings, home insurance and mortgages. It was suggested that the penalty could be around £4 billion in total across the five markets.
Whilst acknowledging that offering introductory deals is not necessarily harmful, the CMA noted that the loyalty penalty raises particular concerns when:
- Suppliers make it more difficult than it needs to be for customers to exercise choice, and then exploit those who do not switch;
- The price gap is large, with some paying very high prices, or it affects many people;
- It particularly harms those who may be vulnerable such as the elderly, those on low income, or with physical disabilities or poor mental health;
- It happens in ‘essential’ markets.
The CMA urged regulators and the government to do more to tackle these problems. It has recommended a number of key reforms to address the problems related to the loyalty penalty:
- Stopping harmful business practices
- Publicising the loyalty penalty to hold suppliers to account
- Giving people more help in getting better deals
- Protecting consumers from harm, particularly vulnerable customers
- Better understanding of the loyalty penalty across markets
The CMA expressed support for the current market study being undertaken by the UK Financial Conduct Authority into home insurance pricing practices.
Access a summary of the CMA’s Report here.
Access the CMA’s detailed report here.
NSW Parliamentary Inquiry into the FESL
NSW Parliamentary Inquiry (30 November 2018)
The NSW Parliament Committee which was set up earlier to this year to inquire into and report on the funding of fire and emergency services issued its Final Report on 30 November 2018. The Inquiry’s Terms of Reference included a review of:
(a) the policy process and financial modelling underlying the provisions of the Fire and Emergency Services Levy Act 2017
(b) the policy and financial implications for all stakeholders of repealing the Act,
(c) alternative models for ensuring that fire and emergency services are fully funded in a fair and equitable manner; and
(d) any other related matter.
The Committee has made two findings and six recommendations. A copy of the report is attached.
ESL contribution target
ESL contribution target for 2020-21
The insurance contribution target for the 2020-21 financial year was announced in the NSW Government Gazette on 15 April 2020.
The target has been set at $1,089,966,770.
ESL contribution targets for insurers
In the 2018-19 half yearly budget update, the Government announced significant increases in forecast ESL collection for the coming years.
ESL contributions have been relatively steady in recent years but are forecast to increase from $780m in the 2018-2019 financial year to $898m* in 2019-2020.
The budget increases are principally to fund workers compensation reforms, as well as increased expenditure on Rural Fire Services (RFS) capabilities. For further information about these reforms see the Changes to the emergency services levy fact sheet
* Updated figure for 2019-20 published by Treasurer in NSW Gazette on 26 April 2019