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Determination
Case number | 12-00-1006031 |
Financial firm | AAI Limited |
Case number: 12-00-1006031 24 June 2024
The complainants hold a home and contents policy with the financial firm (insurer).
The complainants say the insurer has incorrectly applied a premium increase on their policy for the new insurance period. This is in comparison to the previous period and other comparable quotes from different insurers.
The insurer disagrees and says it calculated the property’s risk rating correctly and applied the premium according to its risk modelling.
The complainants want their premium reduced.
AFCA may only consider a complaint about premium pricing in limited circumstances. That includes whether there has been an incorrect application of a premium, having regard to the insurer’s usual guidelines and procedures. AFCA is not able to consider the rating factors and weightings used by the insurer to determine how it will charge the premium.
In saying that, I am not satisfied the insurer has applied the premium increase for the 2023 – 2024 renewal either correctly or fairly.
The insurer could not provide a reasonable explanation or justification for the significant increase despite having a sufficient opportunity to do so. This indicates it is likely the premium has been calculated incorrectly. Therefore, the premium should be re-adjusted.
This determination is in favour of the complainants.
The insurer is required to recalculate the premium in the manner set out in section 2.1.
AFCA may only consider a complaint about premium pricing in limited circumstances. That includes whether there has been an incorrect application of a premium, having regard to the insurer’s usual guidelines and procedures. AFCA is not able to consider the rating factors and weightings used by the insurer to determine how it will charge the premium.
In saying that, I am not satisfied the insurer has applied the premium increase for the 2023 – 2024 renewal either correctly or fairly.
Under AFCA Rule C.1.2(a), AFCA can only consider a complaint in relation to premium pricing in limited circumstances. One of those is when the complaint raises concerns about the incorrect application of a policy premium having regard to any scales or practices generally applied by the insurer. That is the case here.
The complainants are unhappy with the substantial increase in the premium for the renewal period. Amongst other things, the complainants say the risk factors for their property should not have changed in the area as the vegetation levels have not varied.
There is no dispute the premium has increased by approximately 60% for the subject renewal compared to the renewal. This is reflected in the policy schedule. This is a significant increase.
The insurer says the level of the applied premium is generally influenced by several factors including, but not limited to, the address of the insured property and the level of cover chosen.
In specifically addressing the complainant’s property, the insurer acknowledges the premium has significantly increased compared to previous terms.
The insurer says the insured property is rated as ‘very high’ for bushfire and hail risks where the Fire Services Levy (FSL) has increased. This included an update to the renewal premium capping which has contributed to the overall increase. The insurer says the increase in the NSW FSL rate was 0.6%.
The insurer says it is entitled to charge a premium which is reflective of its assessment of the risk, taking into consideration all factors. The insurer says it correctly calculated the renewal premium.
I have carefully considered the available information and the parties’ arguments. I am not satisfied the insurer has shown it has applied the significant increase in premium fairly or that it justified its position.
The insurer did not provide any persuasive evidence to show how the risk assessment details have changed from one policy period to the next.
In addressing the circumstances of the subject risk, the insurer says the insured property is classified as a very high risk of bushfire and hail. There is no evidence that this was not the case in the previous renewals or that it re-rated the risk in this intervening period.
Therefore, it is not clear what were the general or specific factors that led to such a significant increase from the one policy period to the next.
Whilst I accept the FSL has increased, this is minimal and does not account for the sharp premium increase of approximately 60%.
I accept there are generic factors which affect policy increases from year to year. The insurer outlines these in its submissions. I further accept it relies on complicated (and commercially sensitive) systems to devise the amount to be calculated in any given individual year.
However, the insurer should still be able to provide a reasonable explanation about the general and specific factors that have led to the increase applied. For instance, this may include:
It has not effectively done so in this instance. A significant increase, without any reasonable explanation or justification to explain the basis of the increase, infers it has applied the premium incorrectly.
As the information shows the insurer has incorrectly calculated the premium, I consider it is fair the insurer should adjust it.
In doing so, I consider it fair the increase for 2023 renewal be set based on the average increases applied to the premium from the 2020 renewal. For instance, if the average increase over this period was 30%, then the insurer should re-adjust the 2023 premium to limit the increase by 30%.
The insurer could not provide a reasonable explanation or justification for the significant increase despite having a sufficient opportunity to do so. This indicates it is likely the premium has been calculated incorrectly. Therefore, the premium should be re-adjusted.
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 of the information the parties have provided.
While the parties have raised a number of 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.
