ASIC is calling on general insurers to improve their claims handling practices and resourcing after a review of home insurance claims found weaknesses across five key areas.

ASIC’s Report 768 Navigating the storm: ASIC's review of home insurance claims (REP 768) assessed claims handling practices to coincide with the commencement of general insurers’ obligation to manage claims efficiently, honestly and fairly from January 2022. The review looked at data from more than 218,000 claims lodged between January and March 2022 from six insurers that cover 63% of the Australian home insurance market.

Deputy Chair Karen Chester said, ‘An insurance claim doesn’t have to be handled perfectly, but it must be handled well. Our claims handling review found good practices and poor practices across all six insurers. We identified five areas where insurers can and should make immediate claims handling improvements – consumer communications, project management, identifying vulnerable consumers and complaints, resourcing of claims and complaints handling’.

‘Importantly, all five areas we’ve identified for improvement are within the insurers’ control. Improving claims handling practices and resourcing will make an immediate and positive difference to consumers when it matters most – making a claim on their home insurance,’ added Ms Chester

ASIC examined all home insurance claims lodged with the six participating insurers between January and March 2022, and followed those claims through the claim handling life cycle for a further 6 months. 43% of the claims ASIC examined related to severe weather events including the floods in New South Wales and Queensland in February and March 2022 (CAT221). The claims reviewed show that the insurers were unsurprisingly facing pressures due to severe weather events during and prior to this period.

‘We acknowledge that not all factors that impact claims handling are under an insurer’s direct control. But all five areas we’ve identified for improvement are within the insurers’ control. This is especially so for supporting and resourcing claims handling and dispute resolution teams in the regrettably ‘new normal’ of frequent severe weather events. Insurers must prioritise proactive and clear communication with their customers throughout the claim’s life cycle. Insurers need to have proper oversight of third parties and effective project management of building claims, not outsource this to their customers,’ concluded Ms Chester.

REP 768 identified five areas for improvement:

• better communication with consumers about decisions, delays and complications,
• better project management and oversight of third parties,
• better recognition and management of expressions of dissatisfaction and complaints,
• better identification and treatment of vulnerable consumers, and
• better resourcing of claims handling and dispute resolution functions.

ASIC also calls on insurers to further analyse the resourcing of claims handling and immediately address under-resourcing of their complaints handling (dispute resolution) functions.

ASIC will write to the six general insurers to detail individual areas for improvement. ASIC will also continue to monitor claims handling practices and take regulatory action where necessary.

ASIC will conduct further work in 2023/24 on:

• potential unfair contract terms relating to maintenance and ‘wear and tear’ issues, and
• reviewing the performance of insurers dispute resolution functions.

ASIC has also commenced several investigations related to insurance claims handling practices.

Background

ASIC’s REP 768 assessed claims handling practices for home insurance claims lodged across January to March 2022 for six insurers, representing 63% of the home insurance market. The insurers that participated in the review are:

• AAI Limited (Suncorp) (including AAMI, APIA, GIO, Shannons, Suncorp and Vero)
• Allianz Australia Insurance Limited (including Allianz and TIO)
• Auto & General Insurance Company Ltd (including Budget Direct, ING and Virgin)
• Insurance Australia Group, which includes Insurance Australia Limited and Insurance Manufacturers of Australia Pty Limited (including CGU, Coles, NRMA, SGIC, SGIO, WFI and RACV)
• QBE Insurance (Australia) Limited (including QBE, ANZ and Elders), and
• Youi Pty Ltd.

ASIC reviewed quantitative data from participating insurers for 218,256 home insurance claims (building and/or contents) lodged between 1 January and 31 March 2022 and followed those claims through the claim handling life cycle for a further 6 months. ASIC requested 150 claims files (25 files per participating insurer) for a targeted review to gain deeper insights. ASIC also commissioned qualitative consumer research (not limited to participating insurers), involving 40 consumer interviews and 25 case studies across Australia to capture consumers’ attitudes to the claims process.

This review is part of ASIC’s ongoing work in relation to insurance claims handling. In December 2021, ASIC reported findings from a review of the 2019–20 Black Summer bushfires (over 8,800 claims across 12 insurers).

From 1 January 2022, insurers with authorisation to provide claims handling and settling services must comply with the obligation to act efficiently, honestly and fairly under s912A of the Corporations Act 2001. ASIC’s Information Sheet 253 Claims Handling and Settling: How to comply with your AFS licence obligations (INFO 253) provides information on compliance with this obligation.

Insurers involved in handling claims are also obliged to act consistently with the duty of utmost good faith under s13 of the Insurance Contract Act 1984 (Cth).

Insurers that subscribe to the General Insurance Code of Practice (Code) must meet the standards set out in the code, which is monitored and enforced by the General Insurance Code Governance Committee. The Committee recently published a report on claims handling, Thematic Inquiry into Making Better Claims Decisions.

Insurers need to ensure their claims handling and dispute resolution functions are adequately resourced and sufficiently trained in order to meet their regulatory obligations as well as the standards in their voluntary General Insurance Code of Practice. Table 5 in INFO 253 provides information on compliance with this obligation.

The House of Representatives Standing Committee on Economics has established an Inquiry into insurer responses to the 2022 floods.

ASIC’s Moneysmart website provides helpful information for consumers on home insurance and the steps to make a home insurance claim.