Consumer NZ: More clarity needed on insurance cost, benefit

Monday, 15 June 2020

Reserve Bank governor Adrian Orr has told insurers their assurances about their competence and good behaviour will not be believed without proof.

Insurance customers need better information so they can understand how what they’re paying is changing – and what they’re getting for their money, Consumer NZ says.

AA Insurance has said that, as of next year, customers will be able to see what they paid for the past year’s cover on the bill for the next year’s cover.

That will make it easier to compare the premiums paid from one year to the next.

Stats NZ data shows that in the year to September last year house insurance premiums rose 7.6 per cent across the country. In 2018, it was up 16 per cent.

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Some individual customers have dealt with bigger changes as insurers have changed the way they calculate premiums.

“Despite being introduced into the UK market several years ago, and Australia in 2018, like-for-like comparison of premiums, or annualised premiums, haven’t yet been made available by the New Zealand general insurance industry,” says Chris Curtin, AA Insurance chief executive.

“We really wanted to be transparent and do the right thing by our customers – and as quickly as possible – especially as we know that juggling finances has been particularly difficult for some of our customers during Covid-19.”

He said AA Insurance had been going to launch the initiative in March but Covid-19 had pushed it back.

The premium notices will incorporate the changes that have been made to a customer’s policy through the year, so they receive an accurate account of how much their premium would have been the previous year, based on their current renewal details.

“We don’t expect our customers to search through a year’s worth of paperwork to find last year’s insurance premium to make the right financial decision about renewing their insurance,” Curtin said.

“For us, it’s about helping our customers the best way we can and being clear about pricing is a simple way we can do that.”

But Jessica Wilson, head of research at Consumer NZ, said the practice should be widespread.

“It’s one of the changes we’ve called for so consumers have better information about the cost of insurance.

“When renewal notices include details of the previous year’s premium, it also prompts customers to shop around or haggle with their insurer to get a better deal.

“Our survey research shows consumers are keen to get this information – 84 per cent in our last survey agreed it would be useful if the renewal notice contained details of the amount they’d paid in the previous year so they could see how much it had changed.”

She said consumers should be given access to other information, too.

“Insurers aren’t required to disclose key information such as their claims ratio – the amount they pay out in claims versus the amount consumers pay in premiums.

“When you look at products such as credit card repayment insurance, a product sold by banks for many years, consumers may have got back as little as 11c for every $1 paid in premiums. It’s an example of an insurance that was really poor value for money – good money for those selling it but pretty worthless for consumers.

“If insurers had been required to disclose the claims ratio, it would have made of the product’s flaws much more obvious to consumers.

“Requiring insurers to report on other measures – such as their average claim processing time – would also help consumers make informed choices about insurance products.”

Tim Grafton, chief executive of the Insurance Council, said making insurance easier to understand was a priority for the sector – “from including previous year’s premiums to the use of plain English to make documents easier to understand. These are great steps for consumers which we know all our members are currently working on.”