Not-so lucky you're with AAMI: Suncorp's bushfire shame

Lucky you’re with AAMI, right?

Well not so much if you were one of the unlucky families who lost their home in the 2015 Christmas Day bushfires in the Victorian seaside hamlet of Wye River.

One of the country’s biggest insurance brands, Suncorp’s AAMI, has been accused at the banking royal commission of short-changing customers with policies that allow for the complete replacement of their home if it is damaged in a natural disaster.

The royal commission heard on Thursday that AAMI also sent renewal forms and charged insurance premiums to customers whose homes were destroyed and had already experienced lengthy delays in having their homes repaired.

The alleged breaches of Suncorp's advertisements about the cover held by the victims of the Wye River fires were so severe the Australian Securities and Investments Commission investigated whether Suncorp had committed a criminal offence under the ASIC Act.

The group’s issues with Wye River were so bad Suncorp chief executive Michael Cameron prepared a letter to then prime minister Malcolm Turnbull to explain the company’s issues.

“Customers with outstanding claims will receive a personal apology,” Mr Cameron said in the draft letter.

A key issue for Suncorp at Wye River was the “complete replacement” clause in AAMI policies and other insurance brands owed by Suncorp, including APIA and GIO.

The complete replacement policy allows Suncorp to offer the policyholder a cash settlement to cover the value of the repairs on the property or for Suncorp to hire a builder to repair the property.

The Wye River bushfires affected 334 properties in both Wye River and Separation Creek.
Of those, 116 properties were destroyed.

Suncorp’s insurance arm, AAI, received 63 claims in relation to the fires, of which 34 related to AAMI-branded products.

The majority of the AAMI claims, or 28 of the 34, had complete replacement cover and the policyholder received a cash offer.

Suncorp Group chief executive Michael Cameron wrote a letter to then PM Malcolm Turnbull.Credit: Jessica Hromas

The royal commission heard Wye River residents with AAMI policies were offered cash settlements that were often hundreds of thousands of dollars below building replacement quotes. One customer was told by AAMI it would cost a little more than $400,000 to replace their home, when their own builder had assessed the replacements at nearly $700,000.

Another AAMI customer was offered $780,000 to replace their home, while their own quote estimated it would cost $833,000 because AAMI had underestimated the original size of the property.

The toing and froing between AAMI and its customers meant that some customers experienced delays of nearly a year in receiving a cash settlement.

Suncorp chief executive of insurance, Gary Dransfield, said the company did not accept it made mistakes in handling its customers, but could have improved its communication with them.

“I believe we could have and should have been clearer with customers earlier in the process of the potential for a more elongated claims experience than if they had a total loss for the sum insured (rather than a complete replacement policy),” Mr Dransfield said.

He accepted that charging customers premiums for properties that had been destroyed was conduct that fell below community standards.

ASIC later became involved after local member, Liberal MP Sarah Henderson complained to then financial services minister Kelly O’Dwyer about delays to repairs and AAMI’s handling of cash settlement offers.

Documents presented to the royal commission showed ASIC had concerns that AAMI’s offers were often 90 per cent of the actual replacement cost.

Suncorp was later fined by ASIC $43,200 for misleading advertising over its communications relating to its “complete replacement cover”. The royal commission heard that this was a much smaller amount than the $7.2 million in fines it could receive.

Late in the day, commissioner Kenneth Hayne questioned Mr Dransfield on whether insurers could receive volume discounts for rebuilding costs - an issue that was mentioned in passing. Mr Dransfield said the insuer may recieve 5 per cent cheaper quotes, an amount the commissioner said could be "considerable" once "you add up every subbie in the rebuild".

"Plumber, sparkie, concreter, sometimes the framer, the drainer, Wye River you're probably putting in a septic... 15 per cent mark-up as distinct from 20 per cent mark-up becomes serious dollars sometimes?"

"It can do," Mr Dransfield said.

Fire destroyed 116 homes at Wye River and Separation Creek on Christmas DayCredit: Tom Jacobs