ASIC takes aim at insurers over claims and complaints failures
The corporate regulator is considering going after insurers and executives who fail to deal with a surge in complaints.
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The nation’s biggest insurers could be facing court action, with the corporate regulator saying boards should consider slashing bonuses handed to executives amid growing ire over the handling of complaints.
The Australian Securities & Investments Commission said many insurers were failing to even identify one in six complaints being raised.
The regulator has previously attacked the $86bn insurance industry over delays helping victims of the 2022 NSW and Queensland floods, while also pointing to broader systemic issues blighting the sector.
In a new report, ASIC said insurers were denying customers “critical protections” by failing to log complaints, warning internal dispute resolution regimes were failing.
ASIC said its review of 11 general insurers found shortcomings across the sector, highlighted by a 50 per cent surge in complaints at the Australian Financial Complaints Authority disputes body.
ASIC’s review scrutinised the practices across 11 insurers, including Youi, RACQ, RAA, QBE, Hollard, Hallmark, Allianz, Suncorp’s AAI, as well as Insurance Australia Group and Insurance Manufacturers of Australia (RACV).
An analysis of 1.4 million insurance complaints resulted in ASIC identifying 85 “systemic issues”. However, ASIC said nearly half the insurers failed to identify any systemic issues at all.
ASIC commissioner Alan Kirkland said ASIC was contemplating potential enforcement action if insurers failed to lift their game, with the regulator “closely watching the complaints coming through”.
Declining to point the finger at any insurer, Mr Kirkland said specific companies were on the regulator’s watchlist. He said ASIC was looking at potential areas of prosecution, including insurers which made representations about their complaints or disputes handling which “weren’t living up” to claims.
Potential cases could cover misleading or deceptive conduct or failures of utmost duty of good faith.
“We’ve been pretty clear that the range of insurers in this review are not fulfilling their legal obligations in relation to dispute resolution,” Mr Kirkland said.
ASIC will provide all 11 insurers written feedback on its findings.
Insurers will be required to provide feedback and an action plan to ASIC “outlining how they intend to respond to the issues”.
Mr Kirkland, who previously ran consumer group Choice, said the regulator also had options under the Financial Accountability Regime — better known as the FAR — to take aim at insurance executives who were enjoying fat bonuses despite failures, saying they could be cut.
“We’ve been really clear, we’re willing to use the FAR where we see serious failures,” he said.
Mr Kirkland said although a key catalyst for the boom in complaints was the 2022 NSW and Queensland floods, the issues identified pointed to broader problems in the insurance sector.
More than 300,000 insurance claims, totalling almost $7.4bn, were made in the wake of the floods.
“We’ve been clear with insurers that they need to be prepared for those significant events to happen more often,” Mr Kirkland said.
ASIC’s review found one in five insurers failed to meet mandatory requirements to notify customers of delays.
No insurer was found to have provided delay notifications within the required time frames.
ASIC found a key driver of issues was “an absence of a positive complaints management culture”, with many insurers failing to identify complaints when customers were raising matters.
“Some insurers have been slow to enhance components of their (internal dispute resolution) process — for example, only recently upgrading or starting to upgrade their systems,” ASIC found.
“These enhancements could have occurred in earnest over three years ago when the obligations commenced.”
ASIC’s report comes on the back of IAG’s latest update to investors on Tuesday, with the insurer revealing the dividends of several years of technology investments.
IAG chief executive and managing director Nick Hawkins told The Australian on Tuesday the insurer faced difficulties in communicating with customers, adding that third parties often were dealing with their claims.
“Often we make that unnecessarily complex for customers,” Mr Hawkins said.
But, he said IAG and other insurers had a “great opportunity” to use technology to “make it much more customer-centric”.
Mr Hawkins, who was paid $1.7m in the 2024 financial year, recently announced plans for IAG to buy rival insurer RACQ, opening the door to a greater slice of the Queensland market.
Steve Johnston, CEO at insurance rival Suncorp, was paid $4.3m in the 2024 fiscal year.
A recent parliamentary report from the House Economics Committee also highlighted issues around insurance complaints handling, and called for an enforceable code of conduct for the sector.
In its recommendations, the report into the 2022 floods called for a standardisation of key terms across insurance contracts, as well as new regulatory guidelines from ASIC.
The inquiry, backed by the Albanese government, recommended forcing insurers to make a claims decision within 12 months or accept it in full.
It also called on insurers to establish internal dispute resolution and monitoring teams.
Mr Hawkins said IAG had faced a “huge number of claims” at AFCA over the past few years.
A national insurer, IAG, which reported an $898m net profit in August driven by a $1.43bn profit from its insurance operation, moved to a single claims management platform two years ago.
Australia’s insurers have all reported a turnaround in their fortunes after a series of drubbings and profit blowouts on the back of natural catastrophes.
Fitch Ratings said the sector had a “neutral outlook”, noting underwriting profitability would “remain stable as strong premium rate hikes in recent periods work their way through to earnings, offsetting rising claim costs”.
But, an International Association of Insurance Supervisors report said the sector was facing climate risks and the impact of inflation that may affect returns in the years ahead.
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