Insurers rate pay-by-the-month customers a higher risk, slugging them seven per cent extra
A SNEAKY tactic by insurance companies that forces Aussies who pay-by-the-month to fork out more cash has been slammed as “discriminatory” and “unfair” by the nation’s leading consumer group.
Costs
Don't miss out on the headlines from Costs. Followed categories will be added to My News.
EXCLUSIVE
PEOPLE who pay their insurance monthly are secretly classified as higher risk and charged as much as seven per cent extra.
The practise — denounced as “discriminatory” and “unfair” by the nation’s leading consumer group — has emerged from a News Corp Australia investigation that also reveals some insurers impose a further penalty to compensate themselves for the lower investment returns they earn from the revenue from customers who pay monthly instead of annually.
When additional administration costs are included, those who pay monthly can be hit with premiums up to 20 per cent higher than those who pay their entire policy upfront.
MORE: How insurers will soon charge more for buying at night
MORE: How having a uni degree cuts your insurance premium
While it has been known that insurers factor in car colour and education level when setting individual policy prices, today is the first time paying monthly has been identified as a component of the risk profile insurers create on each customer.
“This is completely new,” said Choice’s head of policy Erin Turner.
“The insurers are discriminating against people who can least afford to be discriminated against,” Ms Turner said, labelling the practise “unfair”.
Allianz, the fourth-largest insurer in Australia according to Ibisworld, said it charged those who paid monthly an extra 11 per cent compared to the cost of paying annually. Of this, seven per cent “relates to the different risk profile”, an Allianz spokesman said.
Shadow-shopping by News Corp Australia found the biggest difference between annual and monthly premiums was 20 per cent, at AAMI, which is part of the nation’s second-largest insurer, Suncorp.
“Our claims data generally indicates a higher risk for customers who pay by the month,” a Suncorp spokeswoman said. “To that end, Suncorp, AAMI and GIO customers who opt to make monthly payments incur an additional cost.”
Suncorp wouldn’t say how much of the 20 per cent extra AAMI charge was for risk.
Its Apia and Shannons customers are not charged anything extra for paying monthly.
Research from Canstar for News Corp Australia shows more than 60 per cent of 50 policies it tracks allow premiums to be paid monthly at no extra cost.
Budget Direct slugs its monthly instalment customers as much as 18 per cent more.
“Factors that go into the additional cost for monthly policies include elements such as higher administration costs due to the significantly higher volume of transactions, additional customer service frequency, higher cancellation rates and higher claims cost,” said Budget Direct marketing director Jonathan Kerr.
Youi said it included paying monthly as a risk factor which pushed up prices, as did IAG, the largest insurer.
QBE, the industry no. 3, failed to respond to repeated requests for comment. It charges up to 11 per cent extra for monthly payments. IAG, which owns NRMA and other brands, charges up to 4.5 per cent. The difference in Youi’s charges is unknown because it doesn’t provide prices online and it wouldn’t say.”
News Corp Australia’s shadow-shopping found substantial differences in levels of disclosure about the extra cost of paying monthly. Budget Direct and QBE were among the clearest; AAMI was the least transparent.
Insurers do not lose out if a person paying their insurance by instalments makes a claim early in the policy’s life.
“Under a monthly instalment arrangement, if a claim is lodged at any time during the policy period the remainder of the annual premium will still need to be paid,” said Insurance Council of Australia communications manager Campbell Fuller said.
john.rolfe@news.com.au