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Insurance giant Suncorp has been ordered to ditch a whopping 60 per cent hike of a home insurance premium following a complaint from a disgruntled customer.
The Australian Financial Complaints Authority (AFCA) ordered the massive increase be scrapped because it was not convinced the insurer applied "the significant increase in premium fairly or that it justified its position".
Suncorp is one of Australia's biggest insurers with brands including AAMI, GIO, Bingle, APIA, Vero and Essentials by AAI.
Suncorp's full-year net profit was up 12 per cent to $1.2 billion.
Suncorp would not disclose which brand was involved in the complaint to the ombudsman. (ABC NEWS: Lucas Hill)
The June ruling has been seized on by consumer advocates and the former chair of the Australian Competition and Consumer Commission (ACCC) Allan Fels who say many Australians could be getting ripped off by insurance companies.
"It looks like price gouging an individual customer," Mr Fels said of the Suncorp case.
"A 60 per cent price rise not justified by anything special, like risk."
Alexandra Kelly from the Financial Rights Legal Centre believed the case meant more people should take on their insurer.
"I would be much more encouraging now that we have confirmation that the ombudsman is putting the onus back on the insurer and questioning if they're not providing sufficient information," Ms Kelly said.
Alexandra Kelly said more people might consider taking on their insurer if they believe they have been treated unfairly. (ABC NEWS: Billy Cooper)
The AFCA's ruling has resonated with retiree Tom Taylor, who lives in Melbourne's south-eastern suburbs.
He was shocked to see his AAMI home insurance premium renewal increase by almost 55 per cent.
"I live in a pretty plain vanilla suburb where not much has changed," Mr Taylor said.
"I thought, 'How could they have come up with this?'"
Tom Taylor was dismayed to see his insurance premiums were increasing. (Supplied)
Mr Taylor, who has a background in economics and finance, said when he called and pressed for an explanation, it did not provide one.
He is now considering taking his case to the ombudsman.
"You do wonder if you've got this much higher price simply because you've been a loyal customer for many years," Mr Taylor said.
Suncorp did not respond to questions about Mr Taylor's AAMI premium.
Insurer failed to provide 'any persuasive evidence'
Complaints about general insurers to the AFCA are at record levels.
The ombudsman can rule on how premiums are priced, but only under limited circumstances, including whether the premium is incorrect and if there has been non-disclosure, misrepresentation or breach of the law.
An earlier case against Suncorp's AAI Limited examined the 2023-24 renewal of a customer where the premium also rose by 60 per cent.
The Suncorp customer challenged the increase and argued the risk factors for their property had not changed.
But the insurer said the property was rated "very high" for bushfire and hail risks.
It also cited the NSW Fire Services Levy had increased, however the size of that increase was 0.6 per cent.
The financial ombudsman was not convinced by the insurer.
It said the insurer had failed to "provide any persuasive evidence to show how the risk assessment details have changed" or provide a "reasonable explanation".
The AFCA ordered the price be reduced to the average premium increases from the 2020 renewal.
The insurance brand for the complaint was not named and Suncorp and AFCA refused to provide it.
(ABC NEWS: Lucas Hill)
Peter Gartlan, the co-CEO of Financial Counselling Australia, said the decision was "huge" because the insurer had been "caught out".
"The insurer basically gave the proverbial bird to the ombudsman," Mr Gartlan said.
Mr Gartlan called on the corporate watchdog, the Australian Securities and Investments Commission (ASIC) to investigate.
ASIC told the ABC premium setting was a business decision.
"ASIC expects insurers to make sure their policies and pricing are easily understood by consumers and that their practices are efficient, honest and fair," Commissioner Alan Kirkland said.
Suncorp was unavailable for interview.
The company said premium calculations were based on a range of data sources and frequently reviewed.
"In the case of the AFCA determination, the premium was thoroughly assessed and calculated in accordance with the level of risk associated with the property," the Suncorp statement said.
The Financial Rights Legal Centre's Alexandra Kelly said it regularly took calls about high insurance premiums and said consumers who phoned their providers often received a lower price.
Ms Kelly has backed calls by a parliamentary inquiry for insurers to clearly communicate the basis for premium hikes and wants prices broken down into clear components.
Alexandra Kelly from the Financial Rights Legal Centre said customers who asked for better deals often received them. (ABC NEWS: Billy Cooper)
"A lot of consumers have taken steps to mitigate or to reduce their risk and they often don't see that being reflected in the prices being offered to them," Ms Kelly said.
"What we would like to see is insurers being more open and transparent as to what is making up the price of insurance."
There is also an outstanding recommendation from the consumer watchdog, the Australian Competition and Consumer Commission (ACCC) she believes could make a difference — a home insurance comparison website.
The watchdog said the site, which would compare price and policy features, could help people make better decisions, increase competition and put downward pressure on prices.
The ABC asked Assistant Treasurer Stephen Jones whether the Albanese government would consider creating a comparison website, but he did not respond to the question.
"The government expects insurers to accurately and fairly price premiums," a spokesperson for Mr Jones said.
"Insurers must not include dishonest or unfair contract terms in their contracts with consumers, and face penalties for any breaches of the law."
More Australians struggling to pay for home insurance
There are mounting concerns that home insurance is increasingly out of reach for many Australians.
An Actuaries Institute report released in August found 1.6 million households are struggling to pay for home insurance — especially in parts of Queensland, northern NSW, regional Western Australia and the Northern Territory.
Insurance for Tom Taylor's home has increased in the past year. (ABC NEWS: Patrick Stone)
Insurance prices have been rising sharply with Australian Bureau of Statistics figures showing a 14 per cent increase in the year to June.
The industry blames this on a number of factors.
"Escalating costs of natural disasters, the increasing value of homes making them more expensive to repair or replace, inflation pushing up building repair costs, and the increasing cost of doing business for insurers," the Insurance Council of Australia told the ABC.
While many of those factors are important, former ACCC chair Allan Fels questioned whether other significant forces were also at play.
"The industry is not very competitive, it's highly concentrated and it has a number of practices to extract high prices from consumers," Mr Fels said.
At the request of the union movement, Professor Fels recently examined allegations of price gouging and unfair tactics used by big business and identified harmful conduct that was driving up inflation.
Mr Fels said he believed customers who do not shop around were being slugged a loyalty tax.
"In year one, to get you in, they give you a low price, and then they escalate the price quite heavily in later years," he said.
"I think we need an inquiry into excessive looking price rises in insurance."
Former ACCC chair Allan Fels has recently looked into price gouging from big business. (ABC News: Emilia Terzon)
The insurance industry has pushed back against claims of price gouging.
"Insurance prices risk, and a higher premium generally indicates higher risk," the Insurance Council of Australia said.
"Insurers calculate risk differently and the ICA's strong advice for all customers is to shop around."