Financial Exclusion, Poor Insurer Practices and Consumer Protection Project
General insurance encompasses three products — building, home contents and motor vehicle insurance — that are considered essential to financial inclusion in Australia. These products allow consumers to accumulate important assets while knowing that they are protected against loss or damage from fire, flooding or theft. General insurance also includes more controversial products such as add-on insurance and extended warranties.
This project is Australia’s first large-scale empirical study examining financial exclusion and lack of access to general insurance, as well as poor insurer practices in selling insurance and handling claims. Through surveys and interviews, the project also aims to evaluate the effectiveness of the legal protections for consumers of general insurance.
Aims and objectives
General insurance has an important role in contemporary Australia, particularly in the context of responding to natural disasters such as floods, storms and bushfires.
However, a national survey has shown that around 19% of Australians do not have access to building, home contents or motor vehicle insurance. A lack of access to these products often goes hand in hand with other factors associated with socio-economic disadvantage, such as living on a low income, renting, and being a recent migrant or refugee from a non-English speaking background.
There is also evidence that a broad range of poor insurer practices are putting Australians at risk of purchasing policies that fail to protect them in case of loss or damage to their most important assets. These practices include:
- The sale of add-on insurance products to consumers without their knowledge or consent, or in circumstances where the product would be effectively useless to the consumer.
- The failure to adequately disclose important exclusions that render a product unsuitable for the consumer, or that result in unfair outcomes.
- Poor practices in claims handling, including long delays and invasive investigation processes that prompt some consumers to withdraw their claims altogether.
This project will use large-scale surveys and interviews to fill a significant gap in scholars’ and policymakers’ understandings of these issues.
The project has seven principal aims:
- To investigate how Australian consumers make decisions about general insurance, including the decision not to take out, or to take out inadequate, general insurance.
- To identify the major social and economic factors contributing to noninsurance and underinsurance for Australians at all levels of income.
- To examine the extent to which these factors are different for consumers in demographic groups that experience higher rates of financial exclusion, such as people on low incomes; young people; recent migrants and refugees from a non-English speaking background; and consumers living in rural or regional areas, including those that have recently been affected by bushfires, floods and other disasters.
- To document the incidence and impacts of poor insurer practices in selling general insurance products and handling claims.
- To investigate how consumers, insurers and regulators negotiate, comply with and enforce the legal protections that are available for consumers of general insurance products in Australia (particularly those contained in the Insurance Contracts Act 1984 (Cth) and the Insurance Council of Australia’s General Insurance Code of Practice (2020)).
- To critically evaluate the effectiveness of these legal protections for consumers affected by poor insurer practices.
- To develop options for legislative and policy reform to improve the effectiveness of these legal protections and maximise access to general insurance, particularly for socio-economically disadvantaged groups.
Status of the project
The project commenced in 2018. The first stage of the project involved a review of the Australian and international literature on consumer issues in general insurance; and an analysis of the legal protections that are available for consumers of general insurance products in Australia and overseas.
In the first half of 2019, on the basis of the findings of the literature review, the research team designed survey and interview questions, and obtained ethics approval for the empirical study.
The second stage of the project involved the execution of the empirical study. Between August and September 2019, the research team carried out a survey of 1,500 Australians who have recently made a claim on a building, home contents or comprehensive car insurance policy. Between August and September 2019, the research team also carried out a survey of 1,000 Australians who do not have building, home contents or comprehensive car insurance.
Between January and February 2021, the research team carried out a series of interviews with consumers around Australia who experienced problems or disputes relating to insurance claims made in the aftermath of natural disasters or extreme weather events.
The project is now in its third stage, which involves the preparation of publications drawing on the findings of the empirical study, and where relevant, making recommendations for law and policy reform.
- Evgenia Bourova, Ian Ramsay and Paul Ali, ‘The Arduous Work of Making Claims in the Wake of Disaster: Perspectives from Policyholders’ (2022) 60(4) Geographical Research 534-548
- Evgenia Bourova, Ian Ramsay and Paul Ali, '“Honest, Fair, Transparent and Timely?” Experiences of Australians Who Make Claims on Their Building, Home Contents or Comprehensive Car Insurance Policies’ (2021) 46(3) Monash University Law Review 1-49
- Evgenia Bourova, Ian Ramsay and Paul Ali, ‘A “Damaging Loophole” “Long Overdue” for Closing: Extending Consumer Protections Against Unfair Contract Terms to Insurance’ (2020) 27(3) Competition and Consumer Law Journal 264-294
- Evgenia Bourova, Ian Ramsay and Paul Ali, 'Cause to Complain? Consumer Experiences of Internal and External Dispute Resolution in the Context of General Insurance' (2020) 30(4) Australasian Dispute Resolution Journal 302-316
- Jill Rowbotham, ‘Insurers “Worse Than the Disaster,” Say Extreme Weather Victims’, The Australian, 23 August 2022, 5
- Insurance News, ‘“Biggest trauma”: Claimants Lash Out Over Insurer Processes’, 25 August 2022
Financial exclusion, poor insurer practices and other issues affecting consumers of general insurance have been the subject of significant media attention in recent years.
In 2011, 2014 and 2016–17, these issues were addressed by a series of government reviews and inquiries. In 2015, the Insurance Council of Australia’s Effective Disclosure Taskforce undertook an investigation on product disclosure for general insurance. In 2018, the hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry covered issues including the mis-selling of add-on insurance, and lengthy delays in the handling of claims by consumers whose homes had been damaged by storms, floods and other disasters.
The following are some key sources on consumer issues in general insurance:
Financial exclusion and lack of access to general insurance
- Dominic Collins, ‘Reducing the Risks: Improving Access to Home Contents and Vehicle Insurance for Low-Income Australians’ (Report, Brotherhood of St Laurence, 2011)
- Chris Connolly, ‘Measuring Financial Exclusion in Australia’ (Report, Centre for Social Impact for National Australia Bank, June 2013)
- Genevieve Sheehan and Gordon Renouf, ‘Risk and Reality: Access to General Insurance for People on Low Incomes’ (Report, Brotherhood of St Laurence, June 2006)
- Australian Securities and Investments Commission, Consumer Credit Insurance: A Review of Sales Practices by Authorised Deposit-Taking Institutions, Report No 256 (October 2011)
- Australian Securities and Investments Commission, Buying Add-on Insurance in Car Yards: Why it Can be Hard to Say No, Report No 470 (February 2016)
- Australian Securities and Investments Commission, A Market that is Failing Consumers: The Sale of Add-On Insurance Through Car Dealers, Report No 492 (September 2016)
- Consumer Action Law Centre, ‘Donating Your Money to a Warranty Company’ (Report, August 2015)
- Consumer Action Law Centre, ‘Junk Merchants: How Australians are Being Sold Rubbish Insurance, and What We Can Do About It’ (Report, December 2015)
Claims handling and insurance investigations
- Australian Securities and Investments Commission, Review of General Insurance Claims Handling and Internal Dispute Resolution Procedures, Report No 245 (2011)
- Consumer Action Law Centre, ‘Denied: Levelling the Playing Field to Make Insurance Fair’ (Report, February 2018)
- Financial Rights Legal Centre, ‘Guilty Until Proven Innocent: Insurance Investigations in Australia’ (Report, March 2016)