Consumers are being ripped off by up to $3.7 billion a year: Allan Fels

Professor Allan Fels said loyalty taxes across all industries could be costing Australians $3.7 billion a year.

Professor Allan Fels said loyalty taxes across all industries could be costing Australians $3.7 billion a year.

Governments are being urged to crack down on “loyalty taxes”, after recent estimates suggested they could be costing Australians up to $3.7 billion a year.

Consumer advocates have told The New Daily that the issue of loyalty taxes was widespread across multiple sectors and required immediate government action.

The urgent appeals come after Professor Allan Fels, in his position as NSW Emergency Services Levy Insurance Monitor, forced through legislative changes on Monday requiring NSW-based insurers to include last year’s premiums in policy renewal notices.

Dr Fels told The New Daily that the change was needed so that consumers could work out if their premium had increased. 

“They’re not told at the moment, because last year’s premium is carefully omitted from renewal notices,” he said.

He added that the practice meant existing policyholders paid 27 per cent more than new customers – a practice that could be costing Australians up to $3.7 billion a year, based on extrapolations of UK data.

The change will come into effect on July 1 and will only apply to NSW.

But the nation’s four largest insurers – IAG, Suncorp, Allianz and QBE – have already announced they will adopt the changes nationally.

“I have been fighting a battle with them for several years over this. I met complete resistance and opposition. But finally I used my regulatory powers [to push through the change],” Dr Fels said.

“I believe they’ve seen the writing on the wall and decided to do it themselves in other states before other governments step in and required it.”

Dr Fels said the insurers used significant lobbying resources and other delaying tactics to resist the change.

He also noted that loyalty taxes were common in other industries, too, highlighting energy, mobile phone and home loan providers as regular offenders.

Consumer Action Law Centre CEO Gerard Brody agreed the practice was widespread across multiple industries.

“There was some research done last year that calculated the loyalty tax in some industries was up to $800 a year for some people,” he told The New Daily.

“And the ACCC did an inquiry into mortgage prices in December and found that you could save up to $850 a year in interest if you negotiated on an average-sized mortgage.

“That’s because they offer deep discounts to newer people but put loyal customers on a higher rate.”

Recognising the government had done some good work on this issue within the energy sector, Mr Brody said more needed to be done to bolster consumer protections.

“Anybody who is loyal to their provider and doesn’t shop around is likely to be gouged,” he said.

“It’s good to see what Allan Fels announced today, but our regulators have allowed this to go on for too long.”

However, independent consumer campaigner Christopher Zinn said there was only so much governments could do to crack down on loyalty taxes – especially in the insurance sector, where products vary according to a customer’s specific circumstances.

While he welcomed the changes announced by Dr Fels, Mr Zinn said there was plenty of room for consumers to be more proactive.

“If you wait for the government to do something, you’ll be short-changed,” he said.

“It’s less about consumer protection and more about consumer empowerment.”

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