Home insurers are overwhelmingly paying cash to settle claims, leaving Australians to foot blowouts in repair costs for their cyclone-damaged homes. The corporate regulator is calling for “realistic” bigger payouts, warning the practice could cause “unfair outcomes” for people already in vulnerable positions. In a report released on Monday, the Australian Securities and Investments Commission (Asic) found many homeowners were being paid based on a single quote from insurers’ favoured builders.
Asic commissioner Alan Kirkland said homeowners were then left to find tradespeople, oversee repairs and pay for unexpected costs and damage, all issues that would otherwise have been handled by insurers. It looked at the companies that it said accounted for most of the home insurance industry: Insurance Australia Group (IAG), AAI, QBE Insurance, Allianz Australia and Sure Insurance. Asic said insurers professed to prefer to settle claims by managing repairs or rebuilding, not by paying cash.
The review found none of the five were systematically recording why claims were being settled with cash. Cash settlements were used in more than 63% of final claims. IAG and Allianz each used full or partial cash settlements in more than 80% of cases.
Most cash settlement offers were based on just one quote and most of those were from insurers’ preferred suppliers, the review found. Asic said it was concerned the quotes may not be high enough to cover customers’ repair costs, as customers may not be able to get the discounts given to insurers. In one case, an insurer’s preferred builder provided a quote at a 40% discount and the insurer paid out that cheaper quote in cash.
When the customer asked the builder to repair their home for that cash amount, the builder refused. Some insurers applied extra pay to account for their suppliers giving the insurer a discounted quote but none had consistent systems in place to do so, the review found. Insurers rarely provided consumers enough information to determine if cash was their best option.
Three insurers did not tell consumers their policies permitted them to change their mind after accepting cash settlements, though two later told Asic they had begun clearly informing consumers of their rights. Four of the five insurers had flawed approaches for identifying and assisting vulnerable customers, the report found. While the report did not identify any breaches of legal obligations, it said insurers would clearly comply with the rules if they ensured cash settlement offers were based on market prices, not discount rates.
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