Insurance companies should consider standardising their policy definitions to make it easier for people to compare policies against one another, the corporate regulator said on Wednesday.
Representatives from the Australian Securities and Investments Commission appeared before the Senate economics reference committee, which is examining transparency and competition in the home, strata and car insurance industries.
ASIC’s Michael Saadat says consumers might not always appreciate the nuances in different policies. Photo: Supplied
ASIC executive Michael Saadat said standardised definitions were “a real issue” and that consumers might not always appreciate the nuances in different policies.
“Where there are differences in definition, it’s not always possible for consumers to appreciate the differences those definitions create,” he said.
The committee heard how definitions that might appear similar actually differ considerably between policies.
In one example mentioned, a Coles home insurance policy that covered “actions of the sea” included tsunami damage, but a comparable ANZ policy, which also covered “actions by the sea”, did not include tsunami damage.
ASIC told the inquiry that when people purchase insurance, they generally don’t read product disclosure statements, but instead rely on word-of-mouth recommendations from friends and families.
The committee is deciding whether to set up a government-run insurance comparison website. ASIC said a comparison website would be “complex” but potentially “doable”.
APRA’s Geoff Summerhayes says comparison websites can be overly simplistic. Photo: Jessica Hromas
“Insurers offer different types of products, different types of coverage, but I think given the way technology works you could overcome some of those [challenges]. It is doable,” Mr Saadat said.
Earlier in the day, Geoff Summerhayes, a board member from industry regulator the Australian Prudential Regulation Authority, warned comparison websites could be “overly simplistic”.
Insurance Council of Australia chief executive Rob Whelan warns it is dangerous to buy cover based on price alone. Photo: Sahlan Hayes
“Observations in other markets have been that some of those services which provide a useful service to consumers can be overly simplistic and can look at only a couple of dimensions, when things are never that simple,” he said.
Erin Turner from consumer advocate Choice said a comparison website could include metrics such as claims success ratios.
Where there are differences in definition, it’s not always possible for consumers to appreciate the differences those definitions create
Michael Saadat, ASIC
“The claims ratios could be provided alongside advice on a comparison website … it’s the kind of information that could be brought up at a high level so consumers could look at it alongside price.”
Insurance companies said they were worried a comparison website might lead consumers to compare products on price alone.
Insurance Council of Australia chief executive Rob Whelan said it might create a “dangerous” situation in which consumers are left underinsured.
“We think anything that just goes to price is dangerous … if the industry is deeply involved in [building the comparison site], which is something we are looking at, then it is possible to do something far better than exists today.”
Criticism was also levelled at privately run comparison websites, which the committee heard fail to capture the whole market and do not openly disclose conflicts of interest.
Choice’s Ms Turner said there needed to be more transparency around the reach and interests behind the websites.
“They can’t and don’t cover the whole market … and they don’t clearly disclose commercial conflicts. They are very focused on price in their product offerings,” she said.
“They sell through calls after you use their website, and we are concerned the nature of those calls might be aggressive.”