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Determination
Case number | 12-00-1053052 |
Financial firm | Allianz Australia General Insurance Limited |
Case number: 12-00-1053052 24 October 2024
The complainant had home and contents insurance with the financial firm (insurer).
The insurer significantly increased the annual premium to $6,596.07 in the renewal offered on 11 October 2023, from $2,027.45 in the previous period. The insurer says this is due to its different assessment of the flood risk and appropriate pricing compared to the previous underwriter.
The complainant says the flood risk has been assessed incorrectly, and is an excuse for the insurer to inappropriately increase the premium. He seeks a review of the premium offered.
No. AFCA can only review premium pricing in limited circumstances. As the information provided does not show the premium was increased incorrectly or inappropriately, AFCA cannot require the insurer to reduce the premium.
AFCA can only consider the amount of a premium where there was non-disclosure, misrepresentation or incorrect application of the premium based on the practices generally applied by the insurer. We cannot make a determination about the rating factors and weightings an insurer applies to determine the base premium.
The outcome is fair because the insurer is entitled to determine the risks it covers, and the complainant can choose whether the cover and terms offered suit his needs.
No error in the details used to determine the premium has been shown. I am satisfied the premium increase was based on rating factors and weightings applied by the insurer, specifically the flood risk. There was no misrepresentation or failure to disclose the premium, and no breach of a legal obligation or duty has been shown. In these circumstances, AFCA has no basis to review the premium offered.
This determination is in favour of the insurer.
The insurer is not required to take any further action in relation to the complaint.
No. AFCA can only review premium pricing in limited circumstances. As the information provided does not show the premium was increased incorrectly or inappropriately, AFCA cannot require the insurer to reduce the premium.
The premium charged by an insurer is a business decision and is not generally open to review by AFCA. If a customer considers the premium set by the insurer is too high, it is open to them to review their cover or seek alternative insurance with another insurer.
However, AFCA’s rules allow review of complaints about premium prices where there has been:
AFCA cannot consider a complaint about commercially sensitive rating factors and weightings applied by the insurer to determine the base premium.
While AFCA accepts the insurer has commercial liberty to set the level of its premiums, this is not an absolute freedom. If the level has increased disproportionally without justification, AFCA may review such an increase and consider whether the insurer determined the premium fairly.
However, in the absence of any error or inadequate explanation for the premium increase, AFCA cannot compel the insurer to refund or reduce the premium.
The renewal documents provided show the premium increased from $2,232.24 in November 2022 to $6,596.07 in November 2023. This is a significant increase. The renewal offers show this is broken down as:
Type of cover | 2022 renewal | 2023 renewal |
Buildings | $476.86 | $1,308.49 |
Contents | $239.80 | $299.75 |
Portable contents | $139.01 | $158.06 |
Flood | $1,171.78 | $4,829.77 |
Total annual premium | $2,027.45 | $6,596.07 |
It is clear the majority of the premium increase is due to the flood cover.
The 2023 renewal documents included a page titled ‘Impact of weather events on insurance’, which notes:
I consider this page appropriately highlights the reasons for the significant increase and the options available to the complainant to review his insurance cover.
The insurer says it relies on information from a licenced flood database which incorporates data from various sources, including local council flood studies. It says it cannot share this data due to the licensing arrangements, and the specific dataset and modelling used by the insurer are commercially sensitive.
I acknowledge the complainant is concerned the insurer’s relevant underwriting guidelines and pricing information have been provided to AFCA for consideration in relation to this complaint but not shared with him. AFCA does not ordinarily rely on information which is not shared with both parties when deciding a complaint, however we can make an exception if we consider special circumstances apply.
AFCA accepts the underwriting guidelines, risk modelling and pricing applied by an insurer is commercially sensitive information. This is because it is central to the insurer’s business operations and the insurer has a legitimate interest in protecting the confidentiality of this information in a competitive market. Accordingly, I accept special circumstances apply to this information, and it can be considered by AFCA without being exchanged. This allows AFCA to confirm the basis for the premium pricing without prejudicing the insurer’s commercial interests. I am satisfied the complainant has been provided with sufficient information to respond to the insurer’s position for the reasons explained below.
To determine its pricing, the insurer says it considers the likelihood and potential severity of flooding, and the anticipated cost in the event of a flood. The insurer provided a screenshot confirming its internal flood rating of the complainant’s property, showing it is classified as a significant risk. The insurer says premiums are set to cover expected losses, allow for large and catastrophic claims, claim management expenses and other business costs.
The insurer says the premiums set by the previous underwriter were considerably lower than what it considers appropriate based on its risk and pricing framework. It says it agreed to retain similar pricing for the first renewal offered after the change of underwriter (the 2022 renewal), after which it applied its own risk and pricing structure. It says maintaining the premium at the previous level was not sustainable for the insurer or aligned with its assessment of the risk.
The insurer provided a screenshot of its premium pricing for the property, showing it did not charge the full premium it attributed to each risk in 2022, or in 2023. The discounted pricing shown in the system screenshot is the same as the base premium set out in the premium breakdown table in the certificates of insurance issued to the complainant.
While the screenshots have not been provided to the complainant, he has the certificates of insurance and has been advised of the flood rating assigned by the insurer. The insurer also explained its approach to determining the premium in its exchanged submissions and its previous correspondence with the complainant. I am satisfied the information shared with the complainant was sufficient to explain how the premium was set by the insurer and what factors influenced this.
I am satisfied the information provided shows the insurer set and adjusted the premium in accordance with the practices it applies, and that it has reasonably explained the significant increase in the premium.
The complainant says no flood water has been within 200 metres of his house in the three floods since the 1970s. He says his house is half-way up a hill, so standing water is not possible unless most of Brisbane is flooded. He says he has a different view of the flood risk and wants to be able to opt out of the flood cover.
The complainant refers to an online flood mapping tool from the Brisbane City Council. The council website says Brisbane sits on a floodplain which means flooding is possible. The webpage includes a number of disclaimers, including that the maps and flood level information may not be accurate, current or complete. It says the maps are indicative of possible flood extents only if the data and assumptions on which the modelling is based is reproduced in a future weather event. Inputting the complainant’s address in the tool generates a map which shows flood water reaching a neighbouring property based on a 0.05% annual chance. The definitions describe this as very low likelihood, but say although rare, flooding may still occur. The map shows overland flow is likely to impact the complainant’s property.
While the council mapping shows a low risk of flood, the insurer is entitled to decide which data to rely on to calculate its risk exposure. The insurer has shown it relies on different data which rates the complainant’s property as a high flood risk. It is not open to AFCA to review the factors and weightings the insurer applies to determine the risk rating of the property.
The complainant says he should be able to remove the flood cover if his assessment of the risk is different to the insurer’s. The policies issued by the insurer and the previous underwriter both included flood cover as a standard inclusion. There was no option to opt out of this cover under either policy. The insurer notes it is a general insurer and does not tailor its policy to suit individual needs. It says it cannot remove the flood cover as it is part of the standard terms offered. The information provided indicates the insurer offers other policies with optional flood cover. It also advised the complainant there are many insurance products on the market including those with and without flood cover. It is open to the complainant to review the options available and to select cover that suits his needs.
No basis to require the insurer to reduce the premium
The information provided does not show the insurer calculated the premiums incorrectly based on its usual practices, and it did not misrepresent or fail to disclose the premium to the complainant. The complainant has not identified any breach of a legal obligation or duty by the insurer. In these circumstances, there is no basis for AFCA to require the insurer to reduce the premium.
AFCA can only consider the amount of a premium where there was non-disclosure, misrepresentation or incorrect application of the premium based on the practices generally applied by the insurer. We cannot make a determination about the rating factors and weightings an insurer applies to determine the base premium.
The outcome is fair because the insurer is entitled to determine the risks it covers, and the complainant can choose whether the cover and terms offered suit his needs.
No error in the details used to determine the premium has been shown. I am satisfied the premium increase was based on rating factors and weightings applied by the insurer, specifically the flood risk. There was no misrepresentation or failure to disclose the premium, and no breach of a legal obligation or duty has been shown. In these circumstances, AFCA has no basis to review the premium offered.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. We have reviewed and considered all the information the parties have provided.
While the parties have raised several issues in their submissions, we have restricted this determination to the issues that are relevant to the outcome.
AFCA is not a court of law. We do not have the power to take or test evidence on oath, or to require third parties to give evidence.
When we assess complaints, we consider:
We give more weight to documents created at the time the events occurred. If there are no relevant documents, we will decide what most likely occurred based on the available information.
If there are conflicting recollections and these are evenly weighted, we may find that a claim cannot be established.
