General insurance markets in Australia are concentrated, according to the findings of an inquiry conducted by the Productivity Commission.

In the home insurance, domestic motor insurance, travel insurance, lenders mortgage insurance and reinsurance markets, the largest four firms (which are not always the same four) hold market shares in excess of 70%, says the inquiry report which is titled Competition in the Australian Financial System.

This concentration has increased slightly in recent years, mostly as a result of consolidation activity. The domestic motor insurance, travel insurance, lenders mortgage insurance and reinsurance markets are particularly concentrated, and while the domestic home insurance market is less concentrated, the two largest firms still account for more than half the market. But because many insurers supply their products under multiple brands, consumers may see more an illusion of robust competition than a reality.

The inquiry focusses on competition in Australia’s financial system as a means to improve consumer outcomes, enhance the productivity and international competitiveness of the financial system and the broader economy, and support ongoing innovation — without undermining financial stability objectives. The Commission finds that households and businesses may be paying, through unnecessary fees and low-value products, for a system that is exposed to use of entrenched market power.

The report makes several recommendations for the general insurance sector, including:

1 Comparative pricing information on insurance renewal notices

Renewal notices for general insurance products should transparently include the previous year’s premium and the percentage change to the new premium. This policy should commence by the end of 2019 and be enforced by ASIC.

2 Transparency on insurance underwriting

In addition to specifying which insurer underwrites their products, each insurance brand should specify on their website any other brands that are underwritten by the same insurer, for that particular form of insurance. Insurers should provide an up-to-date list of the brands they underwrite to ASIC. ASIC should transparently publish this information as a list on its website.

3 Phase out distortionary insurance taxes

Consistent with the Productivity Commission’s 2014 Natural Disaster Funding Inquiry, state and territory taxes and levies on general insurance should be phased out.

4 Deferred sales model for add-on insurance

ASIC should proceed as soon as possible with its proposal to mandate a deferred sales model for all sales of add-on insurance by car dealerships. The deferral period should be a minimum of seven days from when the consumer applies for or purchases the primary product. Following implementation, the Australian government should establish a Treasury-led working group with the objective of comprehensively extending the deferred sales model to all other add-on insurance products, with the model set in legislation and ASIC empowered to offer exceptions on a case-by-case basis.