Premiums Unleaded
Sydney Morning Herald
Wednesday April 4, 2001
Are car insurance premiums being driven north by sharemarket forces led by the NRMA's listing or is it just a global acceleration? Christine Long investigates.
Before demutualisation the NRMA was the obvious port of call for anyone who wanted a good deal on car insurance. That's no longer the case as the demutualised company switches its focus to higher profits and shareholder value.
As the NRMA Insurance Group Limited (NIGL) recalculates its premiums, some jumping by up to 55 per cent, its membership has been outraged.
Consumers may lament the end of its mutual status, but the industry has cause for celebration. As a mutual organisation the NRMA had long been a thorn in its side, keeping the lid tightly down on premiums.
But that barrier has gone and consumers can now brace themselves for a raft of premium rises not only on car insurance but on general insurance as well.
As Money's price comparison shows, other insurers, such as AAMI and GIO/AMP, have better deals that can save consumers several hundred dollars a year.
In the past 18 months the general insurance industry in NSW has gone through a period of massive change.
First, GIO was bought by AMP, then last August there was the demutualisation of NRMA, the State's largest motor vehicle insurer.
More recently, HIH has been placed into provisional liquidation, leaving its joint-venture partner Allianz Australia to pick up the pieces for motor vehicle policyholders.
The Insurance Council of Australia is predicting further consolidation ahead for the general insurance industry.
In an address to a conference last month, John Butselaar, deputy president of the Insurance Council of Australia, said overseas trends suggested the merger and acquisition activity was likely to continue.
``The choices are either becoming a large company with economies of scale or finding a profitable niche providing very specialised products," he said.
As a result, ``there will be more mergers and takeovers over the next year or two and there will be a few more insurers that disappear," says Matthew Donnahie, principal officer of Bay Pacific Insurance, a Sydney-based insurance broker.
So what does this mean for drivers and their car insurance premiums?
Listen to brokers and industry insiders and it seems likely that the cost of car insurance will rise in the foreseeable future.
Traditionally, insurers have used car insurance as a loss-leader to entice customers into the office and then make money by selling them other forms of insurance.
But Donnahie says the demise of HIH is likely to make them more cautious about setting car insurance premiums at unsustainable levels to grab market share.
Even putting HIH to one side, most players maintain that car insurance across the board has been underpriced and they claim a number of recent changes have opened the way to higher premiums across the industry. Chief among these is the demutualisation of the NRMA, which has dominated the NSW car insurance market.
In the past the insurer's mutual status and associated low cost base meant it was able to exert considerable pricing pressure on the market. When it dropped its premiums, others were forced to follow suit if they wanted to remain competitive, and that has helped to keep a lid on the cost of car insurance across the board. But David McDonald, insurance analyst at Shaw Stockbroking, says the demutualisation has inevitably led to a change of focus within the organisation.
``[NRMA] is becoming more profit-driven as opposed to being a member-driven organisation," McDonald says.
This may help explain why some policyholders have been receiving renewal notices with premium increases of up to 55 per cent recently.
Graeme Adams, general manager of products and underwriting at NRMA Insurance, admits premiums have risen by 15 per cent on average in the past year, but he denies it is the result of the organisation's demutualisation.
``Premiums are rising because costs to insurers are rising," he says.
In particular, he points to reinsurance premiums which have risen on a global basis as a result of a number of worldwide catastrophes.
The industry is still feeling the effects of the hailstorm that hit Sydney in 1999 and resulted in claims of $1.7 billion, while the falling Australian dollar is pushing up the cost of imported car parts, making repairs more expensive, Adams says.
``The cost of imported parts went up by 6.7 per cent in the first two months of 2001 alone," he says.
Then there is the impact of the GST and the change NRMA made ahead of demutualisation to price premiums on a more individual basis rather than aggregating them by postcode. But other insurers claim that exposure to similar industry-wide factors has not had nearly the same impact on their premiums.
AAMI and AMP/GIO report their premiums have risen slightly in the past year, but neither has seen the level of increases recorded by the NRMA.
Ralph Johnston, national director of corporate affairs at AAMI, says: ``Our premiums in NSW have been relatively static. They might have gone up by 5 per cent on average in the past year."
As a result, the company reports it is getting ``more business than usual" from former NRMA customers and that has been bolstered by a marketing campaign highlighting its premiums on 68 car models.
Similarily Wayne Camenzuli, head of portfolios and marketing of personal insurance at AMP/GIO, says its premiums have risen by about 7.5 per cent on average in the past year.
``What stands out right now is our company is very price-competitive with all the other players, particularly with NRMA," Camenzuli says. This is backed up by the accompanying table which shows AMP/GIO and AAMI were able to undercut NRMA in three out of four scenarios surveyed.
For example, insuring a new Commodore VX Acclaim sedan garaged in Parramatta would cost $842 if you went to AAMI and $892.10 if you went to AMP/GIO.
But if you chose NRMA or Suncorp Metway you could end up paying a premium of $1,089.63 or $1,221.47 respectively.
These differences can be reduced if you receive a multipolicy discount or a discount for staying with an insurer for a certain number of years.
But what it shows is that, more than ever, a few extra phone calls can help policyholders avoid being saddled with uncompetitive rates by their existing insurer.
One policyholder, who didn't want to be named, found his insurer was open to negotiation in the face of a deserting customer. After receiving a renewal notice from NRMA where his premium had risen from $800 to $1,100, he managed to get a quote from AAMI which held the cost at $800.
He then took it a step further by contacting NRMA's call centre and attempting to renew the cover in line with the AAMI quote. He failed.
However, his one last shot at keeping his cover with NRMA was successful. He went into one of its branches armed with his AAMI quote and his renewal notice and came out with car insurance slightly below the AAMI quote.
At the end of it all he is still feeling somewhat confused by the insurer's approach.
``I ended up with what I wanted but I still don't know why," he says.
The figures in the comparison table also show that drivers renewing their insurance policies should never assume they know who has the cheapest policy.
At one stage Suncorp was making a splash in the Sydney market by offering market-leading premiums to drivers in the western suburbs. But, somewhat wiser, it now claims it is no longer targeting that part of the Sydney market.
Joe Dowling, head of public affairs at Suncorp Metway, says: ``We have taken a policy decision not to chase business in the western suburbs. In the main that is because it has a high claims frequency, higher claim sizes and a higher experience of theft."
Instead the group is concentrating on Sydney's northern suburbs and northern NSW.
What the table doesn't show is that the cheapest quote is not always the best value for money.
As Donnahie says: ``The Australian consumer has been taught by the likes of GIO and NRMA to shop around for a $20 or $30 difference in price but the policies from the insurers are all different. They all have different benefits, different attitudes to claims and different views on fraud."
The Australian Consumers' Association (ACA) advises drivers to check that they understand the small print before signing a policy.
In particular, it says, check whether it will cover car hire if your vehicle is stolen, personal property in the car and check how windscreen claims are treated.
AAMI, for instance, will cover car hire for up to 14 days but not personal property in the car.
Suncorp Metway will cover personal property for up to $500 if it is damaged in a car accident but not if it is stolen, while car hire will be included after theft but not if the car is unavailable as a result of an accident.
Louise Petschler, finance policy officer at the ACA, gives an example of how cover can end up worthless if the policyholder is not aware of the small print.
``If you make any unauthorised modifications to your car, such as changes to the transmission or engine, mag wheels or tinted windows, the insurance company probably won't pay for any damage to the modified part and may not even pay for damage to any part of the car," she adds.
In some instances it may even decide to cancel your insurance because the modification could increase the risk of theft or accident, or impact on the safety of the car, she says.
So by all means take advantage of the state of flux in the industry to shop
around for cheaper rates but make sure you don't leave yourself short when you
need to make a claim.
ANNUAL PREMIUMS TO INSURE YOUR CAR
AAMI AMP/GIO
NRMA SUNCORP METWAY
New Commodore VX Sedan Acclaim automatic, priced $35, 485
driven by a 45-year-old male on max NCB* living in Parramatta $842 $892.10
$1,089.63 $1,221.47
New Commodore VX Sedan Acclaim automatic, priced $35, 485
dirven by a 55-year-old female on the mac NCB living in Pymble $678 $637.10
$689.44 717.49
1996 Camry 4-door Sedan CS average mileage, priced $15, 500
driven by a 24-year-old male on the max NCB living in Bondi $1,227
$1,200.70 $1,179.92 $1,593.74
1996 Camry 4-door Sedann CS average mileage, priced $15,000
driven by a 25-year-old female on the max NCB living in Glebe
*No claim bonus Cars are garaged, owned outrigth and driven for private use.
The premiums include stamp duty and GST
© 2001 Sydney Morning Herald