A code governance committee review of online motor applications has found insurers often fail to explain why they are asking for information around relationships or employment – and it urges less reliance on bankruptcy as an indicator of risk.

The review – which examined how 13 insurers handle online applications across 58 motor insurance brands – has led to a call for improved transparency and communication.

The General Insurance Code Governance Committee says it found examples of insurers not explaining why they want personal details such as relationship status, employment status and ownership of other vehicles.

“Four insurers said they ask combinations of these questions to build a profile of a customer’s lifestyle and insurance behaviour,” the committee’s report says.

“They explained that this profiling helps to predict the likelihood of claims occurring and ultimately helps to inform premium pricing.

“However, even if an insurer uses this information collectively, it must explain the specific reasons for a premium to the customer. This includes what information the insurer relied on and how it impacted the customer’s premium.”

The committee found some questions are unnecessary. For example, some asked for employment information as a proxy for how frequently a person drives, despite also asking questions about annual kilometres driven.

“In this context, asking for this information is unnecessary and duplicative and falls short of the code obligation to ask for and rely on information and documents only if relevant to the decision,” the report says.

Three insurers asked customers about bankruptcy or loan defaults and said they could decline cover based on this history. 

But the committee believes bankruptcy “is a poor and indirect measure of a customer’s risk of making a claim”, and insurers should not rely on it when more direct measures of customer risk are available. It says insurers collecting information about bankruptcy should give customers an opportunity to explain the context of their financial position. 

“This approach would encourage transparency, avoid automatic exclusion and ensure fairness. It is also important to recognise that some questions, such as those about bankruptcy, employment status or marital status, can carry social stigmas.

“If such questions are genuinely necessary for the decision to insure, they should be asked with sensitivity, and insurers should clearly explain why the information is needed.”

The review found “significant inconsistencies” in how refusal to offer cover is explained, with five insurers not meeting code requirements.

Phrases such as “eligibility requirements not met” or “you do not meet our eligibility criteria” are common, and not up to code.

“We also found gaps in how insurers explained a customer’s right to request the information the insurer relied on to refuse insurance.

“When refusals are not clearly or completely explained, customers may be left confused or discouraged and denied the opportunity to exercise their rights.”

The committee has written to insurers outlining its concerns and will follow up in six months to assess progress.

See the report here.