Shopping For Home Cover
The Age
Monday February 28, 2000
In previous generations, the bank loan for the Great Australian Dream often included compulsory home building insurance and was generally provided at seemingly reasonable rates by the bank approving the mortgage.
With the expansion of the financial sector and a trend of hiving off non-core businesses into separate entities, home owners are free to shop around for competitive insurance.
The newspaper and television advertising campaigns by car and health insurance companies underline their hope that customers shop around, but there has been a tradition of loyalty for house insurance. The communications manager for insurance giants AMP and GIO, Paula Mulcahy, says retention rates for the over-45s are significantly higher than for younger and newer customers.
A recent renewal notice to this writer from Commonwealth Insurance underlined the need to shop around. The $710 premium seemed a bit expensive and, aware that insurance brokers Countrywide Tolstrup had recently reduced a commercial property insurance premium, I made some phone calls.
With a quote from the brokers of $557 for exactly the same buildings and contents insurance, a Commonwealth Insurance team leader checked with a superior and promptly matched the lower quote. Surprised and delighted, this writer shall remain loyal to Commonwealth Insurance forever - or at least until reinsurance time next year.
The message is clear: there is a free market in insurance and it is up to you to haggle. The old days of Australians meekly accepting a company's price are over.
The Insurance Council of Australia's deputy chief executive, Philip Maguire, believes that personal insurance customers are increasingly shopping around.
"Australia is considered the most competitive country for insurance - meaning there are a lot of players and small margins," says Mr Maguire.
"General insurance is price-sensitive. Not just price but the coverage available, [but] price sensitivity is a big factor and people do shop around."
He says consumers are much better informed than 20 years ago and in recent times the insurance industry has established an inquiries and complaints service to handle consumer calls.
"Consumers should read their policies to know what they are covered for and what they are not covered for. And if not sure, they should ask," he says.
The financial services policy officer with the Australian Consumers Association, Dan Coyne, says there is a constant demand for information on insurance and he points to the Consumers Association website (www.choice.com.au), which has a page on insurance in its money section and includes a checklist for valuing home contents insurance.
"There are significant savings to be made by shopping around for insurance policies," Mr Coyne says.
He says a recent edition of Choice magazine reported dramatic differences in insurance premiums, with cases of identical buildings insurance policies more than $600 apart. Choice also reported differences of more than $200 a year on comparable contents insurance policies.
Mr Coyne says insurance "can be a bit of a maze".
"You need to make yourself aware of the details of the policies. The worst time to find out about conditions on the coverage is when you make a claim," says Mr Coyne.
And while the cost of the policy is a crucial point of comparison, it's also important to read the fine print. The Wollongong floods surprised many people when they found they were not covered for flood damage. While the big insurance companies eventually gave coverage, Mr Coyne says people shouldn't count on them doing it again.
The major choice for house contents policy is whether to buy a "defined events" policy or the more broad - and generally more expensive - "accidental damage" policy.
Mr Coyne says that although the cost of policies varies with the value of contents, it is not a direct variable. Sometimes insuring to the full value of contents is only a little more expensive than insuring at a lower level.
Mr Coyne says the Australian Consumers Association has not looked into the comparative value of using brokers or going direct to insurance companies. But he says that brokers tend to win business from people with more complicated needs.
"If you're looking for something straightforward, you can do it for yourself," Mr Coyne says.
Countrywide Tolstrup's managing director, Neil Bowman, says that price is not the only variable in finding insurance for a customer. He says it is also important to match the client to the most appropriate insurance company for the job.
"Sometimes the cheapest insurance is not the best," says Mr Bowman. He says the details of policies can vary considerably, so people buying insurance need to read the policies.
But he says it is when making a claim that insurance brokers are put to the test.
"Advocacy of a claim often becomes the most important part of the job - and that's the difference between insurers and brokers," says Mr Bowman.
He says that brokers sometimes struggle to compete with direct insurers like AAMI, AMP and RACV but in terms of home insurance have been making inroads against the banks.
"We find we get customers because banks haven't provided enough advice on what they cover," says Mr Bowman. He says people have become more aware of the level of competition and that will continue with the rapid expansion of e-commerce.
The chief executive of the National Insurance Brokers Association, Noel Pettersen, says that the past eight years have seen a steady increase in the number of personal customers using insurance brokers. While 70 per cent of the work of NIBA members is commercial, brokers handle about $6 billion in insurance premiums a year - about 40 per cent of the general insurance market.
He says the introduction of qualifications and compulsory training for insurance brokers, along with a compulsory disputes scheme for customers, has made brokers more attractive to private clients.
"Brokers are required by law to act on behalf of clients and in the best interest of the client," says Mr Pettersen.
Mr Peterson says a lot of people don't have time to shop around for insurance and that's where a broker can be useful.
"Because of their buying power, brokers can in many cases tailor the best policies for the buyers needs and at the best possible price."
And according to the Insurance Council of Australia's Philip Maguire, "the real bottom line for consumers on this is that it is worth shopping around".
© 2000 The Age