Safety net: Getting the most out of your insurance
We've all been told we need insurance for our car, home and health — and a few other things — to protect ourselves from a big financial hit if something goes wrong. But how much do you really know about it? And is it really the safeguard we all hope for?
We hear stories about insurers failing their customers time and time again. Stories such as that of Kendra Stace, whose home was damaged by a storm eight years ago — it remains 'uninhabitable' as her insurance company has only made cash payouts, which are not enough to cover the entire expenses.
Cases like Kendra’s raises many questions, including: Why can't her insurer cover all expenses? What is the point of insurance that doesn’t? And how does insurance work anyway?
How does insurance work?
In Australia, there are two main types of insurance that people use to cover unexpected expenses: general insurance and life insurance. Life insurers will typically provide income protection, trauma or total permanent disability (TPD) policies, while general insurers cover car, home and contents, business and travel.
The amount of money you pay for an insurance policy is called a premium. The higher the risk of something happening to your property or person, the more expensive it will be to insure them. For example, cars in high-theft areas are more expensive to insure than those in low-theft.
When you take out a policy, the insurer agrees to pay a proportion of any losses or expenses you suffer for that coverage. For example, if your car is stolen, your motor vehicle insurer will agree to pay you a sum of money that corresponds to the value of your car, less any excess.
As with most financial products, insurance policies have conditions and exclusions, which you'll need to be aware of before signing on the dotted line.
How big is the insurance industry in Australia?
Australia's insurance industry is worth more than $80 billion and is growing at a rate of 3 percent annually. The general insurance sector earned $45.3 billion in 2021 and life insurers generated $17.72 billion in the same year.
This revenue comes from charging customers a premium for the insurance policy and investment income from the premiums paid into company funds. Insurers also make money from underwriting profits, which is when they earn more in claims than they pay out in premiums. Investment income can come from a number of sources, such as bonds, equities, property and cash.
The growth is from the insurance agencies’ undisputed business models. They have been known to set up their business models so insurance is bundled with other financial products they offer, such as general insurance. They have the benefit of being able to cross-sell their insurance products to customers who are already buying something else from them – for example when you take out a loan with your bank and they then offer you home and contents insurance.
What are the major insurance companies in Australia?
There are many different insurers but these are among the biggest:
- IAG is the largest insurer in Australia as of 2016. It has a market share of 29 percent in Australia and offers car, home and contents, business and travel insurance products.
- Suncorp is the second-largest general insurer in Australia, with a market share of 27 percent. The company offers a range of insurance products, including car, home and contents, business and travel.
- QBE is another large general insurer in Australia, with a market share of 10 percent. It offers car, home and contents, business and travel insurance products.
- Allianz is a global insurer, with a market share of 8 percent in Australia. It offers car, home and contents, business and travel insurance products.
Generally speaking, the larger insurers have a wider range of products and services on offer. However, this doesn't necessarily mean that they'll be able to protect you the best or offer you better value for your policy.
What types of companies can sell and administer an insurance policy?
Companies must be licensed by the Australian Securities and Investments Commission (ASIC) to sell insurance policies. These include banks, building societies and credit unions. In Australia, insurance is also regulated by ASIC as insurers need to comply with consumer protection, corporate governance and oversight regulations.
The industry is divided into four types of players:
- Insurers or insurance companies - These are the main players that manage risks and pay claims
- Insurance brokers - These businesses provide insurance advice to individuals and organisations. They enable you to buy a variety of insurance products (including insurance policies offered by the above players)
- Agents or Insurance agents - These businesses represent an insurer selling their products, which they can bundle with other financial services
- Insurance aggregators - These are online insurance comparison service providers who provide customers with the ability to compare products on the market.
Who is responsible for regulating the industry?
Insurance in Australia is regulated by several government agencies. A prudential and a corporate regulator govern the general insurance industry.
Australian Prudential Regulation Authority (APRA) is the prudential regulator, which is in charge of general insurance administration under the Insurance Act. APRA has established a comprehensive set of prudential standards and practice manuals, as well as the power to create regulatory standards for the whole insurance sector.
ASIC is the corporate regulator, which is in charge of, among other things, general administration of the Insurance Contracts Act, monitoring and promoting market integrity and consumer protection, as well as licensing. Underwriting standards must comply with ASIC's guidelines so that consumers do not end up paying more than they should or receive less than what they think they signed up for.
The Insurance Council of Australia (ICA) is the national association for the Australian general insurance industry. The General Insurance Code of Practice, administered by the ICA, regulates all general insurers who are signatories and sets standards for the entire business sector.
The Financial Services Council (FSC) is a trade organisation that represents financial services companies and includes life insurance firms. All members of the FSC must comply with its Code of Ethics and Code of Conduct.
In April 2011, an Insurance Reform Advisory Group (IRAG) was established to complement the legislative and regulatory structures previously outlined. Its mission is to bring together top industry organisations, consumer advocates, and government officials to discuss concerns in the insurance sector that may be addressed through legislation or regulation changes.
How to get the best out of your insurance
When looking for an insurance policy, it's important to compare the features and benefits of different policies to find the one that best suits your needs. You can use comparison websites or speak to an insurance broker who will be able to provide you with a range of options.
An insurance broker is an independent professional who can help you find the right insurance policy. They'll have a thorough knowledge of how different policies work and what's included in each one. So they compare products on the market to ensure you're getting a good deal. They make money by charging you a commission for their services, but it's worth noting that this is often lower than the cost of buying insurance directly from an insurer.
It's also important to read the Product Disclosure Statement (PDS) carefully as this will outline the features and benefits of the policy. It also contains any exclusions or conditions that may apply.
Once you have found an insurance policy that is right for you, there are a few things you can do to make sure you get the most out of it.
1. Make a list of what you need to insure and keep it updated
This will help when reviewing your policies each year and could save money if there are any changes. With private health insurance, for example, Yahoo! reports that 4.6 million Australians could make huge savings if they ensure their insurance is the right fit.
2. If something happens to one of the items on your list (eg. theft), notify the police and insurance company immediately
This will help to speed up the claims process and could mean you get your money back sooner rather than later. Most insurers have a time limit on when you can make a claim.
3. Keep all documentation or any receipts relating to your insurance policy in a safe place
This includes things like receipts, renewal notices, etc. If you need to make a claim, having this information at hand will save time and hassle.
4. Take note of any valuable tips provided over the phone
Make a written record of any information given to you, including the time, date, and name of the individual you spoke with, as well as the reference number supplied to you if you call your insurance provider for advice on your policy. If you're relying on their advice, let the insurer know this and ask for confirmation in writing, if possible.
5. Be vigilant about checking for special offers from your insurance company, especially post-Covid
Some policies will cover certain things (eg. travel) if you use their services more often while others will ask for higher premiums if you’d like to cover Covid.
6. Pay attention to limits and extras
Most health insurance plans impose limits on claims, particularly those for "extras" such as dental or eye care. For example, in any 12-month period, you may only claim up to $750 in reimbursements for fillings or other dental procedures. There are various methods for calculating benefits. Before choosing a policy, it's critical to get an understanding from the insurer. Annual limits are reset in different ways; some are over a calendar year, while others might be based on a financial or membership year. You may be able to plan your treatments to get the most out of your health fund if you know when your limits will restart.
7. Always read the terms and conditions of your insurance policy before signing up
If there are any parts that you don't understand, ask the company for clarification. You can also take it to an independent advisor for advice.
Pitfalls to avoid
When taking out an insurance policy, there are a number of things you need to watch out for, including :
Conditions and exclusion
These are clauses in your contract that state that a company will not pay out in certain cases. Business operators like Olivia Jones, for example, are struggling to stay afloat because of Covid. She thought she was covered because she had a business interruption policy with QBE. But the insurer maintains a pandemic is not covered. It’s important to read your policy documents thoroughly so you don't get caught out.
This is the amount of money you will need to pay before your claim can be processed and it may make the insurance on some products prohibitive. Especially if they come with long waiting periods or complicated terms and conditions (such as age restrictions). Consider looking for a policy with a lower excess payment or no excess at all. The higher the excess, the lower your premium will be, so there will be a trade-off either way.
The payout waiting time
It can take some time for an insurance company to investigate a claim and determine whether it's covered by the policy. This process can vary depending on the size and complexity of the claim. But it's not unusual for it to take several months and even years, such as in Kendra’s case above. Most policies also require you to make a claim within a certain time frame, known as the claims period. If you don't make a claim within that period, the policy may not be valid.
Some policies have fixed premiums while others may increase over time. Make sure you understand how your insurer calculates yours. And find out what the cooling-off period is in case you change your mind after buying a policy.
Late payment policy
Insurance companies often have a grace period, usually about two months. Use this period to catch up on missed premium payments without penalty. However, if it goes beyond this some companies might cancel your policy altogether. Then you have to wait again for the policy to take effect if you rejoin.
You may cancel your policy any time during the cooling-off period. You will get a full refund provided that you didn’t make any claims. Beyond the cooling-off period, some insurers will allow a pro-rata refund minus cancellation fees and government fees and taxes. Coverage ends as soon as your policy is cancelled.
This is where companies can sneak in all sorts of nasty surprises, such as cancellation fees and reinstatement premiums. If you are not sure what something means, ask the insurer for clarification. You can also take your policy to an independent advisor for advice.
Scammers never run out of ways to swindle your money. You might, for example, get a phone call from someone claiming to be an insurance company representative. They will tell you to update or verify your personal details or your policy will be cancelled. When in doubt, hang up and call your insurer’s publicly registered phone number right away.
What if I have a complaint against an insurer?
If you have a complaint about the handling of your policy, there are several bodies and organisations you can turn to:
- Internal Dispute Resolution - Insurance companies offer their own dispute resolution services for complaints against them. These are free, quick and you do not need legal representation to take advantage of them. You can find out how to complain from the financial firm's website. You can also check out their Financial Services Guide (FSG) or Product Disclosure Statement (PDS).
- Private Health Insurance Ombudsman - The PHIO is an external dispute resolution service available to all private health insurance customers in Australia. If you are unhappy with the response of a health insurer, you can make a complaint for free. A customer's claim will only be accepted by an insurance ombudsman if you have lodged a complaint with the insurer, hospital or doctor directly and nothing happened.
- Australian Financial Complaints Authority - AFCA is another external body created by the Federal Government to resolve disputes between general and life insurance companies and their customers. You can take your complaint to them directly if you don’t want to go through the insurer's dispute resolution services. For a denied claim, you have two years from the date the claim was denied to take the matter to AFCA.
If you’re not sure how to complain in the most effective manner, check out our pro tips in the art of complaining and get your issues resolved in a timely manner.
And if you're still having difficulty getting the desired outcome, we can help. Just say the magic words ‘Handle My Complaint’ and we’ll ensure your issue gets acted upon immediately.