ASIC recently completed a project reviewing insurance claims handling outcomes for consumers affected by the 2019-20 ‘Black Summer’ bushfires.
The fires were declared a catastrophe (CAT195) by the Insurance Council of Australia (ICA) on 8 November 2019. During the 2019-2020 fires thirty-three people died, more than five and a half million hectares of bushland was destroyed and almost 2,500 homes were destroyed or damaged.
The review was also completed in advance of insurance claims handling legislative reforms commencing from 1 January 2022.
ASIC Deputy Chair Karen Chester said, ‘With summer upon us, we want to remind all insurers they now must manage claims efficiently, honestly and fairly. To consumers, the real value of an insurance policy is tested when they need to claim. It is important that claims are resolved quickly, that the process is consumer-centric, that repairs and rebuilds are timely, and that consumers are supported as well as possible after a disaster.’
The ASIC review involved collecting and monitoring insurers’ claims handling data over a 15 month period across 12 insurers representing over 90% of the Australian home insurance market. The detailed findings have been shared with the insurers.
ASIC Deputy Chair, Karen Chester said, ‘ASIC’s review provided valuable insights on how well insurers performed on key consumer outcomes during the ‘Black Summer’ bushfires. We have shared our detailed findings with the insurers ahead of the upcoming disaster season. There are some positive findings from the insurers’ data and in the action taken by individual insurers. While we identified areas for improvement, overall outcomes across the 8,801 claims revealed improved claims handling practices by insurers.’
Across the 8,801 claims reviewed, ASIC found:
- 99% of claims determined by insurers were approved in-full or in-part
- 88% of claimants accepted the insurer’s decision within four months of lodging a claim, and
- 93% of claims are closed, 5% withdrawn and 2% open, as at September 2021.
Nearly all claimants were afforded a temporary accommodation benefit (typically 1 year) under their policy. However, insurers reported that almost 5% of claimants had used up all of their benefit by the end of January 2021. One insurer paid a benefit at the outset of the claims assessment process and one insurer made additional payments after a benefit was exhausted. These consumer-centric practices are encouraging but also suggest that, at least for some policyholders, the cover may have been insufficient to meet consumers’ needs.
Insurers also reported that 21% of policies had debris removal as part of the sum insured rather than as an additional benefit. Where it is part of the sum insured there are concerns this may contribute to underinsurance. At least one insurer is working towards a consistent additional benefit across its brands.
ASIC’s review also found some insurers needed to make improvements to the quality, accuracy and reliability of claims information recorded in their systems. Insurers’ data had quality issues including some data missing where ASIC would expect it to be reported (for example, 97 claims were reported with a date of decision, but no decision was reported).
‘We call on insurers to invest in better systems, processes and internal controls. This will help ensure good consumer outcomes are achieved for claimants. Measuring consumer outcomes – and doing so well – is today’s must‑have for the insurance industry. Products must not only be fit for purpose to meet consumers’ needs, but insurers also need to record accurate data to know how they are performing when handling claims,’ said Ms Chester.
During ASIC’s engagement with the industry for the review, a number of good practices were identified, including:
- Responding swiftly to the event, tracking bushfires and proactively contacting customers in affected areas, encouraging them to lodge a claim or even evacuate
- Paying the maximum temporary accommodation benefit at the outset of claims assessed as a ‘total loss’, to provide certainty to those claimants
- Making product design changes to broaden policy coverage for fire damage, and effectively making this change retrospectively, and
- In advance of the upcoming disaster season, undertaking simulation exercises to stress-test a response to simultaneous disasters, including how insurers will respond in a pandemic to allow for assessment and emergency repairs to property.
ASIC encourages all insurers to adopt these practices more broadly.
Disasters consistently cause mass claim events that test an insurer’s ability to manage their customers’ claims and expectations. The COVID-19 pandemic has created additional challenges for customers and insurers alike. With the reforms to claims handling commencing from January 2022, ASIC will continue to work with the industry to set clear expectations and will be monitoring insurers to ensure claims are handled in a manner that is timely, accurate and transparent.
In January 2020, ASIC published a media release (see 20-006MR) encouraging insurers to ensure that claims arising from the ‘Black Summer’ bushfires are handled efficiently and fairly. Information for consumers on what to do after a disaster was made available on ASIC’s MoneySmart website.
In December 2020, ASIC wrote a letter to insurers setting out actions they should consider to ensure that they are better placed to meet their duty of utmost good faith in the context of the upcoming summer disaster season. The letter was informed by consumer research and set out an overview of research findings.
During 2020-21, ASIC engaged with 12 insurers and collected claim-level data across 8,801 claims arising from the ‘Black Summer’ bushfires. 12 insurers were selected on the basis that they had each received at least fifty CAT195 claims, limited to residential property.
Following a review of the data, ASIC engaged further with the insurers to obtain an update on the status of claims that were reported as ‘open’ at the time of our initial data collection (as at January 2021) and to understand why some claims remained open (as at September 2021).