ASIC demands insurers lift their game saying catastrophic weather is the ‘new normal’

Insurance companies have been put on notice over their handling of claims from Aussies hit by natural disasters. See which areas need urgent improvement.

The corporate watchdog has told the insurance industry it needs to massively improve the way it handles claims from customers hit by natural disasters following last year’s catastrophic floods in Queensland and New South Wales.

In a report released on Wednesday the Australian Securities and Investments Commission said only 6 per cent of people who claimed on their home insurance following last year’s wild weather got first repairs done within six weeks and criticised insurance companies for offloading much of the work on to clients who had already been plunged into crisis.

Houses surrounded by floodwater in Lismore last year. Picture: Dan Peled/Getty Images

ASIC deputy chair Karen Chester said the regulator acknowledged that not everything making claims handling worse in a crisis was in the control of insurers but said the industry needed to lift its game because catastrophic weather was the “new normal”.

She said there were five areas that needed urgent improvement – communication with customers, project management of repairs, identifying complaints, handling claims and identifying vulnerable customers.

“All five areas we’ve identified for improvement are within the insurers’ control,” she said.

“This is especially so for supporting and resourcing claims handling and dispute resolution teams in the regrettably ‘new normal’ of frequent severe weather events.

“When you talk to insurers about accessibility and affordability of home insurance and extreme weather events, they say ‘it’s public policy needs to be fixed, things are out of our control,” she said.

“And yes, we acknowledge that many things are not within their control. But this is all in their control, and they need to get their house in order.”

Just 2 per cent of customers who lodged claims during the floods and other natural disasters in 2021 including severe storms in South Australia and Victoria and an earthquake in Mansfield, Victoria, were categorised as “vulnerable” even though the floods alone left thousands of people homeless.

More than 40 per cent of the claims surveyed by ASIC related to the floods, which devastated large areas of Queensland and NSW in February and March and led to almost 250,000 insurance claims, worth close to $6bn.

The claims data relates to six big general insurers – AAI, which owns brands including AAMI, Suncorp and Vero; Allianz; Auto & General Insurance, which owns brands including Budget Direct and ING; IAG, which controls brands including CGU, Coles, NRMA and RACV; QBE; and Youi.

Just 2 per cent of customers who lodged claims during the floods and other natural disasters in 2021 were categorised as “vulnerable”. Picture: Jonathan Ng

Some customers complained that they had to project manage complex repair jobs themselves.

“It’s like going to a restaurant and ordering a meal and then being told to cook it yourself,” one told ASIC.

Other concerns raised by ASIC in the report include insurance companies knocking back claims based on pre-existing “wear and tear”.

These included claims for roof damage where customers were afraid to check for themselves by climbing on to their roof.

It comes after a report released by the Actuaries Institute on Monday found that flood insurance is becoming increasingly unaffordable due to climate change.

It said that to address the immediate pressure state and territory governments should get rid of insurance taxes or introduce subsidies, while in the longer term changes including pooling risks and banning new construction in flood zones should be considered.

Peak industry body the Insurance Council has also called for government intervention after acknowledging last month that some buildings in high-risk areas “can no longer be insured”.

A spokesperson said the ICA was looking closely at the issues raised in ASIC’s report “to drive further improvements to customer and community outcomes”.

It commissioned a review of its response to the floods by Deloitte last year and the final report is expected in October.

Originally published as ASIC demands insurers lift their game saying catastrophic weather is the ‘new normal’