Former ACCC boss Allan Fels calls for price inquiry after insurance premiums blowout

The industry has reported a bumper profit season after a string of poor years, but a former competition boss says price rises should be put under the microscope.

Allan Fels says the insurance industry should be subject to a “very public” price inquiry. Picture: Ian Currie

Australia’s insurance sector should be subject to a “very public” inquiry from the competition regulator to examine breakneck price rises, according to former competition Tsar Allan Fels, with current chair Gina Cass-Gottlieb noting she shared broader concerns around affordability.

Speaking after a trio of insurers unveiled a combined $1.3bn in profits from Australian customers in the February results season, Professor Fels said he was concerned about competition in the insurance sector, which has moved to rapidly ratchet up prices in recent years.

This comes as the Australian Competition and Consumer Commission runs the ruler over insurance pricing in Northern Australia and a parliamentary inquiry considers the industry’s responses to the 2022 floods.

Professor Fels said he had been “flooded” by complaints from “ordinary people” about the price of their insurance.

“There is massive public discontent with the rise in insurance premiums and a deep concern they greatly exceed inflation,” the heavyweight regulator said.

“The price rises seem excessive in comparison with increases in costs and risks and seem exploitative of consumers and small businesses in particular.”

ACCC chair Gina Cass-Gottlieb said the regulator “shares concerns broadly” around insurance pricing and affordability, but said it was a matter for the government to trigger a targeted price inquiry.

“We certainly have been looking at areas adjacent to it and have a very close consideration of financial services,” she said.

“It would be a decision for the government as to whether to send us a direction to engage in further broader insurance inquiry.”

Assistant treasurer Stephen Jones said the government was keenly aware of affordability issues, noting a parliamentary inquiry would examine pricing.

Mr Jones said he was “not arguing against” Mr Fel’s proposal but noted any policy responses to pricing would be a matter for the inquiry.

Insurance Australia Group, which represents such brands as NRMA, RACV, and CGU, reported a 12.5 per cent overall lift in its gross written premium in six months to December 2023.

IAG, which reported a $614m profit from its Australian direct and intermediated insurance arms, has ratcheted up premiums on customers as it responds to several years of poor weather and unexpected inflation.

Gross written premium, or the total insurance premium increases plus new business, charged by IAG has climbed from $5.9bn three years ago to $7.9bn — largely driven by price rises.

IAG is also flagging further pain as the insurer pushes to lift its overall margin to 15 per cent from its current 13.7 per cent levels.

But IAG chief executive Nick Hawkins noted the squeeze on many insured customers, telling investors the company had “worked hard to minimise premium increases”.

Professor Fels called out insurance as an area of concern in a report into price gouging by Australia’s supermarkets published in recent weeks.

The former ACCC boss noted insurance prices had lifted 22.6 per cent between March 2021 and September 2023, with the size of the increases in some areas worsening “the cost-of-living-crisis”.

Listed insurer QBE reported $US439m ($673m) in full year profits from its Australian operations over the 12 months to December, noting it had slugged Aussie customers with a 12.5 per cent lift in premiums in the period.

This was well above the 7.8 per cent increase charged to international customers and topped the 10.5 per cent pushed through to American customers over the same period, despite QBE’s American arm returning a $US180 loss.

QBE group chief executive Andrew Horton said the insurer was facing more competition in its overseas markets, making it tougher to pass through higher rate increases.

“To some extent margins are relatively good in the industry, and not surprisingly, when margins are good more competition comes in to compete the price away,” he told investors in mid-February

“We’re not planning for international to do as well in 2024 as it did in 2023, we had a fantastic year, we talked about how the rates in the international market are under a bit more pressure than other areas.

“We believe there will be more competition in our lines across the world.”

QBE also told investors it would further turn the screws on premiums in the year ahead, noting plans to pass through “growth in the mid-single digits” supported by rate increases.

But Professor Fels said the “comparatively high” insurance price increases being slugged to Australian customers “by international standards reflects a serious lack of competition in the Australian market”.

Suncorp, which reported $397m in half-year profits from its Australian insurance arms, also nodded to concerns over pricing, with boss Steve Johnston telling The Australian the company was facing steeply higher input costs.

“I don’t think the circumstances are anywhere near comparable to us, as to others, who are in the spotlight at the moment,” he said.

“There’s no direct line of comparison between what’s going on in insurance and what’s going on amongst others.”

Insurers have been stung with several back to back years of record catastrophic weather, with the 2022 floods Australia’s costliest flood in history and the fifth most expensive disaster since the 1999 Sydney hailstorm.

The 2022 floods saw the industry pay out $3.5bn across 197,000 claims, while the Insurance Council of Australia reports insurers have paid out $16bn in claims since the 2019 Black Summer Bushfires, after a string of storms and floods which followed.

In response, the industry moved to raise prices, with many flooded-out customers facing renewal bills well in excess of affordable levels.

Residents in Lismore report home and contents premiums leaping from $1000 a year to almost $30,000 a year for flood cover.

Professor Fells said he had a “strong impression” insurers were now “refusing insurance to many people in more risk areas”.

“This is inflating their profits further and makes their general price rises less excusable,” he said.

The former competition Tsar, who was previously charged with reviewing insurance pricing in Victoria and NSW when the two states contemplated tax changes, said he was concerned many consumers lacked information on pricing.

“This market is insufficiently competitive for consumers to be well served and in addition there are major information gaps in what’s available to consumers that makes them even more exploitable,” he said.

Insurance Council of Australia boss Andrew Hall said consumers were feeling the repricing from insurers for the poor years past, but said the momentum of increases would now slow.

Mr Hall, who runs the peak body for the insurance industry in Australia, said insurers were “acutely aware of the pressures people are under”.

He said Australian customers were also coming off a relatively benign period for insurance, with the mid-2010s offering a soft market of low inflation and lessened payouts.

“As we stand back from that we can see there’s been a structural shift in home and contents cover in Australia,” he said.

Australia’s market, which has been traditionally dominated by IAG, Suncorp, QBE, and Allianz, has seen a number of new entrants such as Auto & General, which trades as Budget Direct, and Youi, but the high capital barriers present difficulties.

State and Federal governments play a marginal role in the market, self-insuring their assets.

The Victorian Managed Insurance Agency reported $621.2m in gross written premium in 2023, up on the $417.6m in 2020, noting the insurer’s costs “remained well below the commercial market”.

“Recent benchmarking of our premiums highlighted that our rates were on average more than a 50 per cent discount to the commercial market,” the VMIA said.

Professor Fels said a “minimum step” to address concerns around pricing would be to hold a “very public ACCC inquiry” to put insurer’s pricing moves under scrutiny,

“Even better put the prices under permanent scrutiny by the ACCC or the like,” he said.

“This will add further weight to the ACTU call for a permanent price commission.”

Professor Fels’ proposal comes as the ACCC mulls insurer pricing in Northern Australia in response to the introduction of the $10bn cyclone reinsurance pool by the government.

This sees the ACCC collect data on prices, costs and profits from insurers and report at least once a year on the effect of the cyclone reinsurance pool in reducing premiums across Northern Australia.

The ACCC’s report from December found homeowners in Northern Australia were paying “on average, substantially more for their home insurance compared to the rest of Australia”.