We may aspire to be well-informed consumers of financial services but some recent research shows that few of us actually make the grade.
Roy Morgan Research reported earlier this month that 77.9 per cent of general insurance customers don’t approach any other insurer when renewing a policy. An additional 14.6 per cent approach another insurance company but don’t change.
Over the past four years there has been a fall in the proportion who stay with their insurer, from 91.3 per cent in 2013 to 92.5 per cent in the latest survey.
Consumers who insured with RACQ, RACV, RAC, Suncorp, Apia and NRMA were more likely to renew without approaching another insurer first.
Consumers who insured with AAMI, Allianz, Youi, QBE, GIO and Budget Direct were more likely to do some comparison shopping before renewing.
We remain loyal to our car and household insurers, despite evidence that we should be more sceptical. The Australian Securities and Investments Commission reviewed claims handling in the general insurance industry in 2011. It reported that participating insurers denied 0.28 per cent of the 1.2 million motor vehicle claims their received in 2009.
A further 7 per cent of claims were withdrawn prior to a decision being made.
That looks like a pretty good claims handling experience for consumers but ASIC did find that consumers often do not properly understand their disclosure obligations, which leads to a significant proportion of the denied or withdrawn claims.
Last October ASIC looked at the market for add-on insurance – a mix of life and general policies sold by car dealers. Policies included consumer credit insurance, asset protection insurance, tyre and rim insurance and mechanical breakdown insurance.
It found that the gross amount returned to consumers was only nine cents for every dollar of premium, while commissions were as high as 79 per cent of the premium. On average car dealers earned four times more in commissions from such policies than consumers received in claims.
ASIC also found that many of the products were poorly designed, with consumers often paying for something they did not need or would not be eligible to claim for.
Recently ASIC issued a consultation paper setting out proposed reforms to the add-on segment of the market. It plans to require that sales be made on a deferred basis, so that consumers have more time (up to 30 days) to consider their decision. It also plans to impose greater supervision obligations on insurers.
ASIC’s MoneySmart website provides advice about buying insurance. It advises people to check the level of cover, watch out for exclusions and understand the terms of no-claim discounts.
Consumers should also check if they need the same level of cover or whether they need more or less.
For any type of insurance, MoneySmart recommends that consumers get three quotes to compare your current premium with that of similar policies. What Roy Morgan found was that most of don’t get any quotes.