Whereas the grocery store duopoly has acquired loads of consideration this week, market focus in one other key space of family expenditure can be exacting a considerable toll.
We identified per week in the past that insurance coverage giants QBE and IAG had revealed important rises of their premiums, dividends and income of their newest outcomes. Insurance coverage prices are one of many largest sources of lingering inflation — in line with the Australian Bureau of Statistics (ABS), insurance coverage prices rose greater than 16% in 2023, the most important rise since March 2001.
It wasn’t all the time thus. The ABS’ shopper value index information (CPI) reveals insurance coverage prices tracked the CPI from the early 2000s to across the monetary disaster, after which they accelerated considerably solely to flatten out from 2013-15, after which they started rising quicker than CPI, till a surge over the previous two years even larger than post-pandemic inflation. Since 2019, insurance coverage prices have risen twice as quick as CPI.
There’s additionally been a gradual improve in focus within the insurance coverage trade over the previous 20 years. In response to Australian Prudential Regulation Authority information, there have been greater than 140 entities in the entire insurance coverage sector — family, automobile, private, industrial, mortgage — as late as 2004. There have been nonetheless 130 through the monetary disaster. That had fallen to 113 in late 2013, and after that there was a gradual drip of consolidation: 110 in 2016, 104 in 2017, 95 in 2018, 93 in 2021. Now it’s 90, a discount of greater than 1 / 4 prior to now decade.
Even in 2018, the Productiveness Fee identified that:
Common insurance coverage markets are concentrated. Within the house insurance coverage, home motor insurance coverage, journey insurance coverage, lenders mortgage insurance coverage and reinsurance markets, the biggest 4 corporations (which aren’t all the time the identical 4) maintain market shares in extra of 70%. This focus has elevated barely lately, principally because of consolidation exercise. The home motor insurance coverage, journey insurance coverage, lenders mortgage insurance coverage and reinsurance markets are notably concentrated, and whereas the home house insurance coverage market is much less concentrated, the 2 largest corporations nonetheless account for greater than half the market.
The ACCC identified in its report on the more and more prohibitive price of insurance coverage in northern Australia that the issue is exacerbated by that market being much more concentrated than in the remainder of Australia — and people lively insurers weren’t truly bothering to compete with one another.
The 4 massive insurers are IAG and Suncorp — the dominant corporations — and QBE and Allianz. However as a result of some insurers supply merchandise underneath a number of manufacturers, customers might imagine they’ve much more selection than they really do. Suncorp, for instance, operates a “community” of 9 manufacturers together with AAMI, GIO and Bingle. IAG operates not simply NRMA Insurance coverage however CGU, SGIO, SGIC and others. Many of those had been as soon as unbiased insurers eaten up by the massive 4 within the Nineties and 2000s, leaving the phantasm, however not the truth, of selection for customers.
In newer years the trade has consolidated additional, with the massive banks exiting insurance coverage together with different wealth-management merchandise after their gouging and rip-offs uncovered them to an excessive amount of media and regulatory warmth.
Why are insurance coverage premiums so excessive? Sure, the local weather emergency is pushing us into a brand new period of dearer insurance coverage — or of government-backed insurance coverage, as now applies to northern Australia by the still-developing reinsurance pool established by the earlier authorities. Sure, the Black Summer season bushfires after which La Niña made massive calls on insurers’ steadiness sheets.
However drip by drip, acquisition by acquisition, the trade has been allowed to turn out to be an increasing number of concentrated underneath our competitors legal guidelines, which have minimal capability to handle the phenomenon of creeping acquisitions that find yourself delivering the oligopoly we’ve got now.
It’s only one concentrated trade amongst many in Australia, every one exacting its personal value each time we pay a premium, purchase a product or pay for a service, a stealth switch of earnings to massive companies. There’s greater than sufficient of it to occupy the attentions of economists, Reserve Financial institution officers, policymakers and commentators, in the event that they assume it essential sufficient.