7 December 2021

Summer is coming and, with it, Australia’s extreme weather event season.

Insurers have a responsibility to act efficiently, honestly and fairly to give customers the help they need. And this season, relevant new obligations also apply: the design and distribution obligations (DDO) and claims handling reforms.

ASIC’s Senior Executive Leader, Insurers, Rhys Bollen, recently addressed the Insurance Council of Australia’s 2021 Industry Forum. He called on insurers to ensure they are prepared to meet their obligations.

‘Improving customer outcomes for disaster insurance claims is a priority project for ASIC’, Mr Bollen said.

DDO means insurers must design and sell financial products with the customer in mind, so Australians in disaster-prone areas are adequately protected.

And when it comes time to claim, the claims handling reforms mean insurance claims will be treated like any other financial service.

ASIC’s consumer research

Last financial year, ASIC engaged with insurers and customers on a number of research projects to understand how disaster insurance claims were managed.

Our research found that, while more customers were satisfied than not, there were three significant friction points in making claims.

1. Customers had to re-explain their claims to multiple operators
2. Customers wanted more transparency about the assessment process and how their claim was tracking
3. Some customers were unaware of limitations in their cover.

Point 3 is critical for insurers to keep in mind for the upcoming summer disaster season.

Disaster season and DDO

‘Given the findings of our research and the commencement of the design and distribution obligations’, Mr Bollen said, ‘insurers need to consider whether their products are designed to meet the needs of consumers who live in parts of Australia that are prone to disasters.’

Our research found that only a few customers were confident about precisely what they were covered for.

In one research project (prior to the commencement of DDO) focusing on Townsville, Queensland, we found many customers were not aware of key limitations in their insurance coverage and were at risk of being underinsured for flooding. This was despite parts of Townsville being designated as flood-prone.

DDO requires insurers to take a customer-centric approach when designing insurance policies, and target their sales and marketing to the customers their products were designed for.

‘Consider whether the way these products are being distributed results in appropriate products being sold to [customers in disaster-prone areas]’, Mr Bollen added.

And when it comes time to make a claim, the claims handling process should also place customers at the centre.

Claims handling reforms

Mr Bollen highlighted the implementation of claims handling reforms on 1 January 2022. From that date, all firms that provide claims handling services will be licensed under the Australian financial services (AFS) licence regime.

‘It is important that claims handling is regulated like any other financial service, and that firms are fully accountable when providing this crucial part of the overall insurance service. This is where the rubber hits the road for customers – where the previously intangible insurance promise becomes very, very concrete’, Mr Bollen said.

‘We know industry is working towards implementation.’

This financial year, ASIC is reviewing claims handling in life insurance, focusing on historically problematic practices such as the over-use of physical surveillance of claimants.

‘We may do something similar next financial year in the general insurance space.’

Good design is good business

To customers, the real value in an insurance policy is tested when they need to make a claim – what the experience is like at that time and the benefits they receive – not the premium they pay.

With these customer-focused reforms commencing, Mr Bollen called on insurers to be prepared to meet their ongoing and new duties in handling claims this summer, recommending:

• centralising oversight of disaster claims, ideally with a dedicated end-to-end claims manager, to prevent claimants having to re-tell their story to multiple staff
• proactively and effectively communicating with claimants about the process, including how their claim will be assessed, how long it will take and how their claim is progressing.

‘We call on insurers to invest in the systems, processes and internal controls to ensure good consumer outcomes are achieved for your customers’, Mr Bollen said.

‘We will be monitoring and will consider regulatory intervention where necessary.’