17 July 2024

ALAN HAYES

 

ONE of the biggest shocks facing households, if they can still afford it, is the inevitable arrival of their car and home insurance policy renewal.

 

The increase in household insurance has been as much as 56 per cent between 2020 and 2023 and already this year the premiums have risen shapely again – in many cases raising premiums by 43 per cent or more since the previous year. Many Central Coast households that the Grapevine has spoken to have said that renewing their insurance was not an option anymore, amid cost-of-living pressures and higher premiums.

 

To add to the woes of households is the ever-increasing government charges attached to their policies – home insurance has an Emergency Services Levy (ESL), Goods and Services Tax (GST) and Stamp Duty.

 

According to NSW Treasury, ESL is not subject to GST. However, if insurers include the ESL as a component of the insurance premium charged to its customers, GST is payable on the gross premium, including the amount attributed to the ESL. On top of this gross premium stamp duty is then calculated – policy holders are paying a tax on a tax, and then again on a tax.

 

So, both our federal and state government, who keep spuiking that they are trying to help households reduce the cost of living, are gouging for everything they can get. And the insurance companies? – the extra tax they are ‘chiselling’, by charging GST on the EST, will now come back as a windfall when they submit their BAS statement to the Australian Tax Office.

 

Let’s not forget stamp duty charges – when the GST was introduced in 2000, state governments had seven years to abolish stamp duty charges. That time has long passed and, as government try to balance the books, they are adding further to the upward inflationary trend.

 

What about the insurance companies?

 

The question, of course, that haunts everyone, “is insurance company loyalty going to give me a better deal on my premiums?”

 

Just because you have remained loyal to an insurer for many years and deem yourself to be of high-value to the insurance company that you deal with – think again! Because if the answer in your mind is ‘yes’, and that you deserve to pay less for insurance, you have a rude awakening coming to you. You will be surprised to learn the truth, which is that you actually are not – you’re just another statistic that can be extorted for as much as can be wrung out of you. Empathy and sympathy are not part of the insurance company vocabulary!

 

Ordinarily, many organisations honour their most loyal customers with freebies, discounts, and incentives. However, the exact opposite happens in the insurance industry. You can be slapped with higher yearly premiums just for being loyal to your insurer.

 

This act of burdening loyal customers with high premiums is often referred to as 'price optimisation'. Since price optimisation occurs all the time, it affects many existing motor vehicle and home building and contents policy holders. This explains why a loyal customer can still experience a sudden surge in their annual premiums.

 

Evidence suggests that only a small percentage of customers shop for new insurance policies; most find it easier to simply renew with their existing provider. For this reason, insurance carriers raise rates on their loyal customers to make up for losses.

 

Because changing insurers can quickly become a minefield to negotiate, most existing customers don’t tend to shop around – insurance companies find it easy to adjust their rates in in order to retain their profit figures.

 

The blame game

 

Insurance companies blame the huge hike in insurance premiums on the increased cost of inflation and supply chain issues, and the increasing cost of capital, which is now driven by ongoing extreme weather events.

 

Experts say climate change is increasing the frequency of costly natural disasters such as floods and cyclones, which has put upward pressure on insurance premiums.

 

Insurers also claim that they have face more claims from customers, and higher costs to settle claims, leading to the increase in premiums.

 

It has literally been a perfect storm for insurers because of the natural disasters over the past few years. Yet the insurance company whinging doesn’t stop – inflation and the cost of doing business has gone up as they ‘cry’ that it’s been a terrible time, citing more claims and higher costs to actually settle claims.

 

Not surprisingly, the surge in insurance premiums has added to living cost pressures facing households and to inflation – the latter that insurance companies are ‘bellyaching’ about.

 

Profits come first

 

There can be no dispute that insurance companies are motivated by profits and despite their continual moaning that times are tough for them, they still manage to turn significant profits – they own the biggest buildings in town and are not real estate poor.

 

One ‘Coastie’ complained to the Grapevine about the purchase of their new EV. They traded their year-old petrol vehicle in for a new electric one, and despite the sum insured of the new vehicle being almost identical, the insurance company slugged them an additional $800. This came as a shock, since there was a ‘nil’ claims history and the policy enjoyed a maximum no claim bonus.

 

From my own personal experience, I, only last week, was the lucky recipient of the ‘insurance shock’ lottery – my home building policy renewal had jumped by $1200.

 

Last year the premium went up by $500,00 but I just grinned, whinged to my wife and accepted it – the same scenario with our contents and motor vehicle polices.

 

We have insured with the NRMA for thirty-four years without ever making a claim, but we are still only a ‘faceless digit’ on their computer.

 

In two the years the building insurance premium has jumped by 87 percent – the twenty-two-and-a-half per cent loyalty discount and the twenty-five percent no claim bonus, which we still received for last years renewal, had both been reduced to ten percent. This is despite the fact that we have never made a claim!

 

When I questioned the NRMA to provide an answer as to why, and also the steep increase in the premium, you guessed it – ‘the blame game’.

 

However, after two hours on the phone and unwavering persistence – it was a battle that I’m sure Winston Churchill would have been proud of – I managed to reduce the premium by $700. But is this now a battle that I have to resign myself to with all my polices with this insurer – there are ten of them – each year just to keep my insurance costs down? Despite the small victory, I was still being stung for a 44 per cent increase this year. I’ve reconciled myself to the fact that I had no choice – living in an area on the Central Coast that has a lot of bush - a bushfire could occur, although in forty-five years it hasn’t become a reality.

 

After winning a small battle, upon my wife’s insistence, I decided that maybe I should shop around for a better deal – that was a sobering shock! I obtained quotes from a number of other insurance companies whose premiums ranged from $4985 to in excess of $8,000 for the identical cover. As one insurance company representative said, whose quote was above $8,000, there are now vast tracts of homes that are uninsured – an understatement of corporate greed and gouging.

 

Not surprisingly, it was reported only two months ago that insurance giant IAG, who owns the NRMA, is facing a class action law suit for allegedly inflating premiums of loyal customers across Australia.

 

The class action suit against IAG is alleging the company deliberately targeted customers - specifically because they were loyal.

 

The central claim is that a computer algorithm was used to inflate premiums for customers considered more likely to stay, a practice dubbed 'loyalty uplift'.

 

Those increases may have had nothing to do with the person's risk profile or the cost of providing the insurance.

 

Customers likely to leave were allegedly given smaller premium increases than those who were expected to stay.

 

Ben Hardwick from law firm Slater and Gordon suspects millions of customers could have been badly misled.

 

"They were [allegedly] giving them a discount for their loyalty when in fact that discount was meaningless,” Mr Hardwick said.

 

"The insurance company was jacking up the base premium before the discount was applied, with the effect the discount really had no value at all.”

 

IAG customers will be automatically notified if they are eligible for the class action at a later stage.

 

Meanwhile, consumers are either faced with eating ‘bread crumbs’ to keep their homes and car insured or to simply not renew their policies, because their living cost don’t allow them to do so.

 

What is more disconcerting, is that consumers who drop necessary insurance polices to keep food on the table and pay rising energy and petrol prices – an absolute necessity in our modern society – can rejoice in the knowledge that insurance companies, such as IAG, are raking in super profits.

 

In 2023, IAG, Australia’s top general insurer, posted a net profit after tax of $832 million, up 140% on last year’s profit of $347 million. IAG is the operator of some of the biggest insurance businesses, like NRMA Insurance and CGU.

 

IAG also increased their insurance margin of 9.6%, up from 7.4% from last financial year.

 

This growth in profits is even more startling considering the total amount of claims paid out by the company was up 20% on this time last year.

 

Insurance company losses across the industry were more than $650 million on home insurance policies over the past four years and the industry warns premiums will continue to soar.

 

The losses came despite home insurance premiums rising more than 50 per cent since 2020. That rise meant 12 per cent of Australian households were now 'affordability stressed', meaning 1.24 million spent more than four weeks of income on home insurance premiums. Yet insurance premiums continue to rise and insurance companies continue to make obscene profits.

 

Insurance is in the top five most issues of ‘price gouging’ complaint by ordinary Australians.

 

The impact of insurance price gouging

 

It’s a sinking feeling for people when they receive and open their insurance renewal for the next year, only to see that yet again it’s gone up, even if you haven’t made a claim. The term, insurance ‘premium’ seems to only suit the provider.

 

What’s hard to swallow for struggling households is seeing those bills come in, and then finding out the reason your insurance is rising is because your already profitable insurance company is increasing its profit margins, all when millions of Aussies are under the pump.

 

Insurance is an essential. To protect our homes and to get to work we all have to pay those premiums. But it goes beyond the pale to expect hard working Australians to continue to cop increases to life’s essentials, just to have big business creaming from the top.

 

And the final outcome? Thousands of uninsured homes and motor vehicles – placing an unrealistic and unacceptable burden upon society!

 

It’s time government, state and federal, stepped in before it’s too late – the continual ‘talkfests’ are not the solution!

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