A consumer who tried to mislead an insurance company about the details of a possible claim, would rightly find themselves in trouble. Their claim could be denied and getting insurance in the future could be hard.
But what happens when the insurance industry tries to mislead the public? Answer: they get the front page of the Sunday Age.
Sunday’s story reported claims by the industry lobby group — the Insurance Council of Australia — that 24.5% of Victorian households do not have any home and contents insurance. The industry used the figure to justify a shopping list of demands: a call for mandatory home insurance in bush fire areas, forthcoming rises in premiums and the abolition of fire service levies on insurance premiums.
The trouble is that the Insurance Council have quoted their own research selectively. The true position, using their own data, is that 4.1% of households across Australia do not have home building insurance. While any level of non-insurance is of concern, this figure is not going to grab the headlines.
What the Insurance Council has done is to conflate two separate pieces of data: that for the number of people without building insurance and that for the number of people without contents insurance.
It is not surprising that relatively large numbers of people do not have contents insurance — 28% according to the same research by the Insurance Council. This group of people tend not to own homes, nor have significant assets. By and large, they are on low incomes. They are not likely to need contents insurance and many may not be able to afford it.
The misleading use of figures by the Insurance Council is primarily driven by their ongoing campaign against the fire services levy in place in Victoria, New South Wales and Tasmania. The levies are used to fund fire brigade services in these states: in Victoria, contributing three quarters of the budget for the CFA and the Metropolitan Fire Brigade.
Whether the levy is a good thing or not can be debated. But now that we know that around 96% of homeowners pay it, it is at least equitable. If there is non-insurance, the fire service levy may not be the bogey man the Insurance Council would have us believe.
Sadly however there are some people in the community who have no building insurance. However the insurance industry knows from its own research that this group includes a small group of pensioners who are asset rich, but income poor, who have insured their property up until the time they left work and went on to an aged pension.
But to say, as the Insurance Council has, that those people without any insurance should receive no assistance at all from money raised in the bushfire appeal, beggars belief. This is a disaster of unparalleled proportions. Surely our community is not going to punish people without insurance to such an extent? There must be at least some help to this small group of people. A compassionate society would do no less.
We do agree with the Insurance Council on one thing however — the Royal Commission into Victoria’s bushfires could usefully consider the issue of non-insurance. But the Commission should look much deeper.
The insurance industry as a whole is still not offering consumers the products they need. Many of the people who have lost their homes in this disaster are likely to face the same problems that faced homeowners after the 2003 Canberra bushfires — the scourge of underinsurance. It is a problem that should have been fixed then.
According to a survey commissioned by the Australian Securities and Investments Commission, ACT homeowners were underinsured by 27% on average. The cold, hard and unfair reality is that this meant homeowners could not rebuild their homes to the same standard. The insurance payouts were simply not enough.
ASIC’s report showed that underinsurance is an inherent design flaw in insurance policies where the homeowner has to nominate a “sum insured”. Only the most knowledgeable of consumers can possibly make an informed estimate of the likely cost of rebuilding their home, based on current building costs. But they are expected to do this each year at policy renewal time.
And after a disaster, such as a bushfire, building costs soar. For example, building costs are reported to have increased by 75% after Cyclone Tracey in 1974 and 35% in Newcastle after the 1989 earthquake.
A couple of the larger insurance companies now offer “replacement” value policies. This means there is no fixed sum insured. Instead, the insurance company will rebuild or repair a home to the same standard, whatever the cost. If some companies can do this, all companies should do this. Consumers should not have to understand the nuances of policy wordings about the level of insurance cover. Let there be an equal playing field, but make it a fair one.
Insurance companies have also been slow to look at re-designing products to make them more accessible to low income earners. For example, more people might take out contents insurance if they could make fortnightly payments via Centrepay (where payments are taken directly out of social security benefits) or where the contents policy was limited to essential household items.
The availability of insurance is important for Australia’s economic well being. We need well designed and accessible products that will cover people in the good times, the bad times and in these extraordinary times. And if we are going to have a much needed debate about insurance, let’s do it based on data — data we can trust. From an insurance industry we can trust.
The Fire Service Levy as currently struck in Victoria, Tasmania and NSW is inequitable. The levy plus the insurance premium has the 10% GST then added to these amounts. Then 10% Stamp Duty is added to the GST inclusive amount. So the levy is paid plus double taxation.
I am not aware the GST and Stamp Duty raised from the levy goes to the Fire Services. My understanding is they go into Consolidated Revenue. State Governments use the levy on insurance policies to raise additional taxation revenue.
A more equitable approach would be to attach a Fire Services Levy to Local Council Rates where GST and Stamp Duty do not apply. Insurance policies and proper cover thenwould be more affordable.
Vincent Mahon
Aireys Inlet
Victoria
It’s about time the insurance industry is being reported on the front page for there behaviour.
Should be there more often to keep them in line.
Good article. When will public relations clowns learn that using slick (and misleading) spin makes your organisation look truly stupid when the media point out the obvious. What’s scary is that the Sunday Age seem to have missed the obvious point.
You would expect a lobby group to use it’s own stats to it’s own ends. However, that still does not alter the fact that the Fire Services Levy in rural Victoria is a major part of every dollar a consumer pays for home and contents insurance.
By the time you have paid a broker’s commission, fire levies, GST and stamp duty your home & contents premium can double.
Would an asset rich but cash poor penisoner take out insurance if the premium were halved?
Underinsurance and uninsurance is a scourge – but you have to look at the whole package of inadequate products and government tax disincentives. Full building replacement policies have been around for a few years now and are offered by at least four of the major brands.
I agree with the comments re stamp duty, GST and the desirability of $10,000 excess policies. I am one of those who shy away from making small claims, despite having been burgled a couple of times. The police have been notified, but I tend not to make the claim because of the possibility that my claims history will claim against me later on. The amounts involved were quite small – the largest being about $2k in today’s money.
However, funding of fire brigades in NSW is a bit of a rort. The RFS does receive more than half of its running costs from the fire levy, but it is clear that a disproportionate amount is put in by the government in respect of parks and forests, which account for a very substantial number of the largest fires in much of NSW. Add to this the unreported but significant cost to the NPWS and to Forests NSW in fighting their fires, and you may think that they have made an appropriate contribution, but this is not the whole picture by far. Many times, these organisations seem to wait for a “section 44” to be declared, at which time every dollar spent fighting the fires is backcharged to Consolidated Revenue via a separate fund.
These two organisations act like vultures, tearing into the emergency fund for double time overtime, living away from home allowances, helicopter allowances, remote area operations allowances, free meals, vehicle repairs, fuel, emergency purchases of radio equipment, chain saws, equipment generally, etc – the list is endless.
Remember, these are fires which mainly originated on their own land and then threaten those living adjacent to the forests which they “manage”.
Follow the money trail and you will uncover more than just insurance issues. The largest under-insured risks are certainly the forests themselves, not the homes next door.