In an important and controversial development, the Federal Government has announced that ASIC will establish a comparison website to enable consumers to compare home building and contents insurance cover based on price, product features and claims handling complaints. A copy of the Government's media release can be found here.
Establishing a comparison website effectively means that the Government or in this case ASIC is becoming an insurance intermediary competing with the various commercial comparison services available. Depending on how this initiative takes shape, it also has the potential to have a serious impact on the insurance market and the ability of insurance companies to market their products effectively. In that sense, this initiative represents a shift back toward government intervention in the private insurance market which seems surprising given the Government's support for private enterprise and its commitment to reducing red tape.
The initiative pre-empts the outcome of the Financial System Inquiry (FSI). As we noted in our report on the Interim Report (page 20), the FSI noted concerns about the ability of aggregator websites to access to information about insurance products and sought submissions on possible reforms to:
- enable aggregators to use automated processes to seek quotes from general insurance websites, recognising that this could enable aggregators to discover insurer's pricing models
- create comparison categories for insurance products so that aggregators could use insurers' disclosed premiums for each category to compare the value of different products.
The Government's initiative also seems to be following lead of the recent proposal in Singapore (page 19) to establish a government mandated comparison website for life insurance which insurers will be required to participate in.
There are a number of unanswered questions in the Government's release:
- Will it be compulsory for insurers to participate in the comparison website?
- Will it be available to all Australian consumers or limited to insurance available in northern Australia?
- The release refers to home building and home contents insurance, but will other products be included such as strata (which is the genesis of the Government's proposal) and landlords? Will it be extended to other retail products such as motor at a later stage? Is it the thin edge of the wedge?
- How will the Government ensure comparisons are in fact fair and that consumers are provided with the information that they need to decide between insurance products?
- How will price comparison be facilitated? Will this require insurers to give access to their proprietary quoting and rating systems? The Government's original discussion paper contemplated providing a sample price based on postcode (p 14) but this may not be particularly useful to consumers to the extent that their risk factors vary significantly and may be misleading as a result. The discussion paper also contemplated a live quote comparison website as an alternative.
- How will the Government identify relevant product features and how will they be compared? Will this lead to restrictions on the types and terms of benefits available to consumers?
- Why is there a focus on claims complaints without any focus on service levels, customer satisfaction or proportion of claims paid?
- What will ASIC's liability be for the comparison website be?
The Government also seems to be proposing to allow foreign insurers into the Australian market without needing to be authorised by APRA 'where they offer consumers a better price'. How will this be determined? Will it be up to each individual broker and who will supervise this? This would seem to give rise to significant risk for consumers if foreign insurers are not subject to equivalent prudential regulation. The proposal could lead to a repeat of the HIH crisis, particularly if foreign insurers have an unfair advantage compared to Australian insurance companies.
Consumers would also be disadvantaged if foreign insurers are not required to participate in FOS. Even if the proposal is confined to foreign insurers with an equivalent level of prudential regulation, the question is who will assess this? It is also not clear what types of insurance this proposal would extend to – or whether it will undermine the role of APRA by in effect allowing foreign insurers unfettered access to the Australian market.
The Government's proposals are therefore not only controversial but also raise complex unanswered questions which will require a considerable degree of consultation between now and March 2015 when ASIC's website is due to be launched.
However, the real question is whether these are solutions in search of a problem. The Government has said that they are designed to address the high cost of insurance in North Queensland. However, the Productivity Commission stated in its recent report that as 'the significant price increase in north Queensland do not appear to have been driven by a lack of competition, this would suggest that the introduction of an aggregator website and opening the market to foreign insurers would not substantially reduce prices in the region.' (p 389)