Murray inquiry calls for better guidance and disclosure
Insurers must do more to help consumers buy the right cover, according to the Financial System Inquiry’s final report.
Its one general insurance recommendation is for improved guidance – including tools and calculators – and disclosure, “especially in relation to home insurance”.
The inquiry’s report, released yesterday, says insurers should do more to guide consumers on the likely replacement costs of their home and contents.
“If significant progress is not made by the industry within a short timeframe, the Government should consider introducing a regulatory requirement to provide this guidance at the point of renewal or on entering into a contract with a new insurer,” the report says.
Although insurers are allowed to give guidance on replacement values for home and contents, the inquiry says the system is not working due to “commercial disincentives”.
Consumers want guidance but sales staff say they cannot help, according to the report.
Insurance Council of Australia CEO Rob Whelan says members are working with the Australian Securities and Investments Commission (ASIC) on improving advice, given the limitations imposed on them by regulation.
“The uncertain Corporations Act boundary between personal and general advice discourages general insurers from providing more tailored information to consumers about their policies,” he said.
Mr Whelan says insurers do not have all the information needed to assess replacement value, such as local council regulations.
IAG MD and CEO Mike Wilkins welcomed the recommendation on guidance and disclosure, which “highlights the importance of consumers making an informed choice by taking into account a product’s features and benefits, as well as cost”.
“The inquiry also supports our view that the cost of natural disaster insurance can be reduced through improved data and further mitigation efforts, such as building flood levees, as well as by reducing the tax burden on insurance contracts,” Mr Wilkins said.
The inquiry, chaired by former banker David Murray, says the issue of high premiums in disaster-prone areas should be addressed through mitigation rather than direct government intervention.
Mr Whelan says the report is a green light for the Federal Government to urgently work with state and local governments on mitigation and improving building standards.
He says the report encourages a level playing field for all businesses, and promoting the use of unauthorised foreign insurers (UFIs) is contradictory to this principle and could undermine the national domestic insurance market.
The report says: “Should the use of UFIs become widespread, the stability implications should be revisited.”
The inquiry’s report refers briefly to tax on insurance, as part of a discussion on factors driving up costs in the economy and the price of cover.
It refers to advisers, although not insurance brokers, who are sometimes captured in regulations intended for financial advisers.
National Insurance Brokers Association CEO Dallas Booth welcomed a recommendation to scrap the description of general advice, because “it is information and should be treated as such.”
“If you are not giving advice don’t call it advice – call it something else such as product information,” he told insuranceNEWS.com.au. “If you are giving advice, do the training, get the qualifications and experience and the licence from ASIC like brokers do, and be subject to the full gamut of licensing obligations.”
He says the theme of financial services sectors taking responsibility for professionalism, behaviour and quality of advice is supported by the association.