A Senate committee hearing this week gave Steadfast Group the opportunity to refute the allegations made against it by an ABC TV Four Corners investigation into strata sector malpractice.
On Wednesday, CEO Robert Kelly (pictured immediately below), appeared as a witness at the government’s inquiry into the Impact of Climate Risk on Insurance Premiums and Availability. He explained the role of brokers, gave reasons why insurance coverages can be unaffordable and said the government backed cyclone pool is working to increase competition.
The Committee’s deputy chair, Labor Party Senator Tony Sheldon, asked the CEO about broker commissions and questioned their fairness, particularly in the strata sector, in the context of rapidly rising premiums rates.
“I think your point is well made,” said Kelly. “In our home [insurance] business, we moved our commission structure on householders back as the premiums rose.”
He said five years ago when the average home insurance premium cost about $650, Steadfast brokers took a 22.5% commission. Today, said Kelly, those premiums cost about $1,500.
“What we decided to do over the last 12 months is go back to the insurers and wind that back to 17.5% and 15% to give some parity in terms of the work we had to do,” he said.
Kelly said it would be worth debating whether that’s appropriate for the strata sector.
The chair of the inquiry, Australian Greens Senator Mehreen Faruqi (pictured top), raised another strata sector issue levelled against Steadfast: the firm’s market dominance contributing to, she said, “exorbitant insurance costs” for strata owners.
“One submission [to the inquiry],” said Faruqi, “noted that Steadfast enjoyed an 81% share of the strata broker market - is that accurate?”
“That’s completely erroneous and has no basis,” said Kelly.
He said other statements made by the Owners Corporation Network of Australia (OCN), an independent strata owners association, were also “a complete fallacy.”
“What percentage of the market share do you have of the strata broker market?” said Faruqi.
Kelly provided CHU Underwriting Agencies (CHU) as an example. In 2015 Steadfast bought CHU from another giant industry player, QBE Insurance Group.
“Our strata brokers do 44% of their [CHU’s] turnover,” he said. “I was never really good at maths but that would say, to me, we don’t control that market.”
According to the Insurance Council of Australia (ICA) website, CHU is listed with 10 insurance firms that sell strata insurance directly.
Faruqi said the ABC-TV Four Corners investigation also highlighted “some pretty terrible practices” including, she alleged, Steadfast brokers charging consumers for insurance more than twice the amount of non-Steadfast providers. Also, said Faruqi, the firm’s brokers were shown by Four Corners to be failing to disclose that multiple brokers offering quotes to the same customer were all Steadfast brokers.
“How do you explain this? And is this something that is being addressed?” she said.
“Firstly, those statements are completely wrong,” said Kelly. “They’re taken out a context, they’re taken from a specific account, they’re not broadly correct about the market.”
He said what Four Corners was alleging “would be a ludicrous way to go forward and market yourself.”
“I’ve never seen Steadfast brokers competing for the same risk and colluding to do that in my entire life,” said Kelly.
Liberal Party Senator Andrew McLachlan asked if brokers “contribute to downward pressure on insurance premiums because you are a player in the competitive process, or because of the nature of the market you’re restrained from increasing competition?”
Kelly said being competitive is “the whole DNA of insurance broking.”
“The DNA that strikes at the heart of what we do is to say to people, ‘We will evaluate your risk for you, we will put it into the market and we’ll seek prices,’” he said.
McLachlan asked if that would still be the case if there were few competitors?
He said in certain high-risk locations around Australia there may only be one insurer in the market so there would be no competition. He asked, “philosophically,” if in those cases there may need to be other mechanisms to mitigate that lack of competition or create competition, like government intervention?
“Let me say this to you Senator, directly, about that statement,” said Kelly. “If CHU hadn’t deployed nearly $200 million worth of capital into Queensland on behalf of QBE, Queensland insurance would be in chaos.”
He said the pricing that CHU puts into the market is determined by the loss ratio it has in the jurisdiction where it’s placing capital.
“It is not predicated on competing, it’s not competitive, it’s not trying to beat anybody else,” said Kelly.
The CEO said the price charged is based on claims payouts and the customer buying the insurance then needs to decide if that price is acceptable.
“The fact that in Queensland there’s little competition is because others haven’t deployed the capital,” said Kelly.
Senator McLaughlin suggested this presents a problem for a regulator because, as a market that isn’t serving the best needs of customers, it’s a “philosophical” case for intervention.
“That’s what I’m trying to understand from a broker’s perspective,” said McLaughlin. “Your role in that, in a general sense?”
Kelly said the role of insurance brokers is to seek markets “wherever we can” to make sure that doesn’t happen.
He said international insurers in the local market, like Allianz, have broad exposure to cats throughout the world.
“So unfortunately, the ability to get Australian insurers to spread their wings wider is limited by their great exposure to the risk in Australia,” said Kelly.
Kelly credited the cyclone pool with creating a market with more competition.
“We’ve seen Allianz, since the pool [cyclone pool] came into play, and since they’ve put their operating structure in Australia under the cover of the pool, we’ve seen them become aggressive in Queensland to help insure houses at competitive prices,” he said.
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