Split emerges in cash payouts for Suncorp insurance victims

SUNCORP concedes some insurance customers could be offered cash payouts falling short of what it would cost for the victims themselves to rebuild devastated homes.

Suncorp’s insurance chief Gary Dransfield.

SUNCORP has conceded some insurance customers could be offered cash payouts falling short of what it would cost for the victims themselves to rebuild devastated homes.

The issue about Suncorp’s AAMI brand offering cash settlements to people whose homes were devastated in disasters was in the spotlight at the royal commission into financial services on Thursday.

The grilling also ran through Suncorp being fined for misleading advertising of AAMI’s offer to rebuild homes regardless of the cost. The commission revealed the insurer had pumped out more advertisements despite the watchdog warning of potential problems.

The commission also heard of big differences between initial offers and final deals: customer Bernadette Heald said Suncorp offered a cash settlement of $30,000 for their damaged house in NSW’s Hunter Valley.

The Healds rejected the offer and appealed to the Financial Ombudsman Service, which determined in January this year the payout should be $744,000.

Ms Heald said the experience was frustrating and atrocious.

“They were supposed to help us and we got nothing,” she said.

Suncorp came under scrutiny in Victoria following bushfires in Wye River, a regional area southwest of Melbourne, in Christmas 2015.

Suncorp, whose other brands include GIO and Apia, took 63 claims and 34 were for AAMI insurance. Most of the AAMI jobs required “complete replacement” – in which customers were offered to rebuild the whole loss without having nominated a cost earlier.

But finishing the jobs dragged on, resulting in Victorian parliamentarian Sarah Henderson at the time spotlighting problems with claims handling.

The commission heard of examples such as Suncorp offering one victim a $499,000 cash settlement, even as the company had itself taken a second higher quote from a builder to rebuild the home for $862,000. Another customer had personally gotten their own quotes ranging from $973,000 to $1.1 million, but the Suncorp cash offer was $677,000.

Suncorp’s insurance chief Gary Dransfield said the insurer could get discounts from builders because of its scale.

Counsel assisting the commission, Rowena Orr QC said: “That might result in the underquoting of the cost for the customer to rebuild themselves pursuant to a cash settlement?”

Mr Dransfield replied: “It could do.”

But he also said that Suncorp would tell customers that they could seek more money if there were adjustments to works.

PREFER CASH PAYOUT

The commission heard an internal email from Suncorp’s chief executive officer Michael Cameron, asking why a difference was emerging “between our internal story and what appears to be happening” in Wye River claims.

Suncorp’s then head of insurance Anthony Day replied: “Our preference and contractual right is cash, rather than full rebuild, since customers invariably want to rebuild something different … which pushes time frames and additional risk on to us.”

The insurer also sent renewal letters to victims whose homes had burned down, prompting Mr Cameron to draft a letter to then Prime Minister Malcolm Turnbull.

“We will immediately refund the cost of those premiums and extend liability cover at no charge,” the draft letter said.

Mr Dransfield conceded the renewal notices should not have been sent, nor should have people been charged.

The commission also focused on Suncorp last November having to pay $43,200 in fines for its AAMI brand’s advertising, which claimed home cover would “repair or build (an insured home) no matter the cost to us”.

The Australian Securities and Investments Commission found the advertisements were misleading because AAMI could chose to pay the policyholder out instead, leaving the policyholder to rebuild.

The commission heard that Suncorp had pushed ahead with advertisements in 2017 despite warnings from ASIC that earlier advertisements had problems and the newer advertisements seemed to hold similar errors.

Mr Dransfield said Suncorp still did not believe the advertisements were misleading but regardless had paid the fine rather than fight the regulator.

Ms Orr put to him that Suncorp had launched the advertising campaign because the insurer was more concerned about growing its client base share compared to not misleading consumers?

“I think the business imperative certainly was the driver,” Mr Dransfield responded.

Ms Orr calculated that the fines were the equivalent of 0.001 per cent of $426 million in premiums AAMI had received for such insurance in 2017. She asked if that meant Suncorp was happy with the outcome, while Commissioner Kenneth Hayne questioned if the fine was seen as a “very low cost of doing business”.

Mr Dransfield argued that despite the fine’s size, the “reputational impact is significant”.