Insurers fumbled 2022 flood claims, putting their licences at risk: ASIC

The corporate regulator says insurers are at risk of breaching their licences to operate, amid concern over their treatment of flood victims.

Flooding in Port Macquarie, New South Wales. Picture: AAP Image/Lindsay Moller

Too many insurers are doing an inadequate job of settling complex and costly flood claims, and they may be at risk of breaching their financial licences.

A review of the insurance industry’s response to the 2022 floods, which washed away parts of Australia’s east coast, was damning in its findings and not enough has been done to lift standards since, according to the corporate regulator.

The Australian Securities & Investments Commission said it was particularly concerned about insurers’ handling of cash settlements, as these were often one-sided and opaque.

ASIC commissioner Alan Kirkland said despite insurers telling the regulator they had improved their approach to claims handling, many “have more work to do in responding to our concerns”.

“Oversight of builders and repairers has improved since our last report, but there are still gaps in oversight of independent experts – the external advisers who provide the expert reports insurers rely on to make claim decisions,” he said.

ASIC’s latest review focused on the operations of Suncorp, Allianz, Auto & General, Hollards, IAG, QBE, and Youi.

These are the underwriters behind many popular insurance brands.

ASIC Commissioner Alan Kirkland says the regulator is concerned about how insurers handle cash settlements. Picture: NewsWire / Martin Ollman

Mr Kirkland said these insurers lacked a systematic approach to handling expert reports, relying on their claims handling staff to assess issues when they often lacked the expertise.

On the matter of cash settlements, Mr Kirkland warned there were legal obligations to outline options to customers in clear and understandable language “rather than pointing to complex product disclosure statements”.

Instead, insurers were often leaving customers to work out the process themselves.

ASIC said many settlement sheets “gave customers the minimum information” and failed to outline their rights to review or appeal the process.

While some insurers had lifted their game since ASIC’s first report into flood claims in August 2023, there was “still significant room for further improvement”.

And without further work, insurers were at risk of serious consumer harm and breaching their Australian financial services licences as well as the general insurance Code of Practice.

Recently, ASIC sued Hollards for taking more than three and a half years to resolve a claim filed in 2021.

Flood-ravaged communities faced a lengthy clean-up. Picture: Dean Lewins/ NewsWire

Mr Kirkland said insurers should act now, rather than waiting for the next flood.

“We expect all insurers to consider our findings and assess their claims handling programs

against the better and poorer practices identified in our latest review, and not wait to be

tested by another extreme weather event,” he said.

Insurers are already scrambling to respond to the latest floods to hammer NSW’s Hunter and the Mid North Coast, which inundated towns across the regions.

More than 7,300 claims for damage have been submitted.

Originally published as Insurers fumbled 2022 flood claims, putting their licences at risk: ASIC