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.