Submission to the NSW Insurance Monitor loyalty tax inquiry

December 2018: In this submission we provide input to the NSW Insurance Monitor loyalty tax inquiry. Visit our government submissions hub for more Finder submissions to government consultations and inquiries.

We have undertaken extensive research into the "loyalty tax" phenomenon in Australia and have consistently found that customers who stay with the same provider are not rewarded for their loyalty. For this inquiry, we've focused on the findings from our consumer surveys in January 2018 and October 2018, which demonstrate the scale of the issue in the market for home and contents insurance and provide insight on what triggers customers to switch insurance policies. Data tables from these surveys are attached as an appendix and we have outlined our findings below.

Scale of the issue in the market for home and contents insurance:

From the Finder consumer survey of 2,274 Australians in January 2018, we found that as many as 10 million Australians could be at risk of paying the loyalty tax by not considering other providers for the goods and services they use.

Focusing on home and contents insurance, the same survey found that just 9% of Australians were planning to switch their provider in the next 12 months. The survey also found that the proportion of respondents that had switched providers during the 12 months prior to January 2018 was also 9%. This suggests that just 1 in 10 Australians switch home and contents providers each year.

This survey also had sufficient respondents from New South Wales to provide specific data on the state. Residents of New South Wales were slightly less likely to switch home and contents insurance providers than the national average with 8% switching during 2017 and 7% planning to switch during 2018. Across the board, respondents that were homeowners with a mortgage were more likely to switch providers. This was particularly prevalent in New South Wales where nearly 1 in 5 of homeowners with a mortgage switched providers in 2017.

Triggers for switching insurance providers:

In the Finder survey of 2,013 Australians from October 2018, we investigated what events made Australians want to switch insurance providers. The question asked Australians about their insurance policies more broadly, but we believe the responses are relevant and add valuable insight to this inquiry on home and contents insurance.

There were three events that stood out as the most likely to trigger a customer to switch their insurance provider. The first of these was having a bad experience with their insurer, with 30% of Australians in our survey citing this as a key trigger for changing policies. The second main catalyst for switching was getting a renewal notice, which was selected by 28% of the Australians surveyed. The third most popular reason for switching was finding out that someone was paying less than them, which was chosen by 25% of the Australians surveyed.

Concluding thoughts:

There is clearly an issue with customers paying a "loyalty tax" in the home and contents insurance market in Australia and, as such, Finder welcomes the NSW Insurance Monitor's inquiry into this topic. Our consumer research has confirmed that the "loyalty tax" has the potential to impact a high proportion of Australians, and we can show that for those customers that do switch, there are some key events that trigger this.

We believe that any intervention from the regulators and/or policymakers should focus on promoting competition in the home and contents insurance market. Interventions that lead to an increased number of customers staying with their provider could stifle competition and this is unlikely to lead to better outcomes for the customer in the long term. An increase in complaints with the Australian Financial Complaints Authority also indicates a need for intervention, particularly if complaints are recurring, since our research has identified this is a trigger moment for policyholders.

One relatively simple solution could be a requirement for insurers to provide additional information at the point of policy renewal. We believe that at this stage there are key data points that would allow the customer to quickly understand if they are being impacted by the "loyalty tax". These could include the following:

• The premium paid by the customer in the previous year
• Details of any change to this premium compared to the previous year (stated in dollar and percentage terms)
• Details of cumulative changes to the premium since the policy was first taken out (stated in dollar and percentage terms)
• The industry average for year-on-year premium increases across the relevant time period for comparison purposes (stated in percentage terms)

More broadly, we think that an increase in transparency in the industry would provide further benefit to the customer. Currently, customers have to provide a significant amount of information to receive a price for a home and contents insurance policy and this makes comparison difficult. We would love to see greater transparency on pricing so customers could use a site like Finder to quickly compare the price they are being offered by their provider to what is available on the market. We strongly believe that simple comparison leads to better outcomes for customers since people can easily compare both price and features.

Further to this, and as with the other markets we compare, anything that can be done to "unitise" the pricing comparison would make comparison even easier for users. By this we mean making the price directly comparable by dividing it by a consistent denominator. The most prevalent example of this is the ACCC Unit Pricing Code for groceries. We recognise this is challenging in a market like home and contents insurance which has so many variables, but a tiered model like the one being introduced in the health insurance market could move us closer to this.

Regardless of the intervention chosen, we hope that this inquiry leads to increased competition in the home insurance market and a greater dialogue about the benefits of switching. As a comparison website, we recognise we have a key role to play in making this happen, and we will always strive to provide information that helps customers make better decisions.