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One big hitch? Industry questions discount campaign

Consumer group One Big Switch has secured hardworking Aussies a 40% discount on home and contents policies – and that can only be a positive insurance story, can’t it?

Not at all, say industry figures, who fear the campaign’s intense focus on price is dangerous and ill-advised.

About 70,000 people signed up to the One Big Switch initiative, giving CEO David Issa – a former CEO personal insurance at IAG – the bargaining power to negotiate a bulk deal with Coles Insurance.

News Corp supported the promotion and both the newspaper publisher and One Big Switch – which has previously run similar campaigns on mortgages and electricity – receive a commission for every person who takes out a policy.

Mr Issa says spiralling home and contents premiums “hurt everyone” and force some consumers out of the market.

But National Insurance Brokers Association (NIBA) CEO Dallas Booth is leading the charge against the campaign.

“One Big Switch is a real worry for us,” he told insuranceNEWS.com.au. “It gives the impression that you can easily reduce the price of insurance by 20%, 30% or 40%. The reality is the only way you can do that is by reducing the cover.”

The campaign is not a threat to brokers, he says, because it focuses on the direct market, but NIBA believes “people should be thinking carefully about their cover rather than chasing a cheap premium”.

“The outcome won’t be realised until they need to make a claim,” he says.

One Big Switch does not hold an Australian financial services licence, and Mr Booth fears consumers could be misled.

“They would argue they are a lead-generating process and all they do is provide leads to an insurer. In one sense that’s right, but they are operating in the area of financial services and it is a very fine line.

“A relatively uninformed member of the community would assume they are part of the formal process. We are concerned and we have made our concerns known to ASIC [the Australian Securities and Investments Commission].”

The headline figure of 40% is not as straightforward as it first appears.

The discount contains “an exclusive 13% discount for One Big Switch members on top of other existing discounts”, the group’s website explains.

The Insurance Council of Australia (ICA) told insuranceNEWS.com.au it won’t comment on “the activities of individual businesses that offer to churn customers’ policies for a commission”.

But it says buying on price alone is risky because cheap policies may not have the features required.

“ICA supports competition in the insurance market,” a spokesman said. “However, offers to consumers must be fully compliant with the law in terms of consumer disclosure and advice.

“It is important that consumers fully understand the risks of switching from their existing insurance policies.

“ICA has a number of initiatives under way or completed that directly relate to the issue of insurance affordability, and works closely with governments and customers to help them understand insurance risks and develop practical solutions.”

Mr Issa told insuranceNEWS.com.au the campaign has always been about improving affordability and alleviating underinsurance – “issues that were first highlighted by the industry itself”.

He dismissed concerns about a reduction in cover, saying the offer is “no different to what Coles Insurance has previously offered to the market. We achieved this discount because we aggregated 60,000 potential customers, which is a rare opportunity for any provider.”

He says the campaign does not make light of genuine reasons for rising insurance premiums or the efforts of groups such as ICA in tackling root causes.

“The campaign has, from the beginning, acknowledged that there were good reasons for price rises in years gone by. But the campaign has also made the argument that recently, premiums have continued to rise while costs have come down, according to ICA’s own data.”

On the issue of a financial services licence, Mr Issa says One Big Switch acts as a referrer for Coles Insurance, which is an authorised representative of licensee Wesfarmers General Insurance.

“We are comfortable with this approach and we are very mindful of our regulatory obligations,” he said.

“We’re not aware of anyone accusing us of misleading consumers. We certainly don’t believe it’s the case. We don’t give advice or recommendations and our 500,000 members know this as we constantly reiterate it to them.

“We use their combined buying power to source a group-discounted offer, and then we hand over to them and ask them to take the opportunity to shop around, compare and decide what’s right for them.

“A 40% discount is a 40% discount, whatever makes it up. The Coles Insurance offer includes 13% on top of other discounts, for a total of up to 40%. This has been made clear to all registrants.”

Two weeks after insuranceNEWS.com.au asked ASIC to comment on the implications of the Big Switch campaign’s lack of a financial services licence, a definitive response has still not been provided by the regulator.