Aussies face ‘poverty premiums’ on insurance payments
Some Australians are being charged a “poverty premium” by their insurance company because they cannot afford the annual payments on policies.
Industry group Australian Financial Advisers and the Financial Rights Law Center have warned insurers after discovering customers were being left in the dark about payment options.
For many people, paying premiums annually or in installments can have major financial consequences because monthly or quarterly payments are more costly.
This effectively amounts to a “poverty premium,” FCA disaster recovery coordinator Louise Hayes warned on Wednesday.
“People who are already in a difficult situation should not be charged more because they cannot pay for a year’s insurance at once,” he said.
Insurance customers should expect to receive clear information about their options, according to a report published by the FCA and law centre.
He found that customers using installments paid 7 to 11 percent extra on top of the annual payment.
Of the 20 insurance companies covered by the report, 12 charge installment customers more.
Only four of those 12 clearly explained the difference in cost and potential savings on annuities.
Two of them told the report authors that they had reviewed their products and would be checked when they were released.
This left six insurers with some or all of their customers in the dark.
Notifications to customers when it was time to renew a policy tended to use vague wording such as annuities “may be cheaper” or installment rates “may apply.”
“For the insurance marketplace to function properly, consumers need appropriate information so they can make an informed decision,” said Drew MacRae, policy development officer at the law center.
“The practices highlighted are unfair and financially penalize the people who need the break the most.”
Both organizations said it was time for insurers to clearly disclose costs and payment options at renewal time and eliminate installment “penalties.”
The industry also needs to ensure that struggling customers are not locked into higher cost arrangements, especially during the current cost of living crisis.
The bodies also warned they would consider further action if insurers did not want to adopt sufficiently transparent pricing practices.
The most common types of insurance are home and contents, motor vehicle and private health insurance.
According to Canstar, the average annual home and contents insurance premium in 2025 was $2,795.
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