5 ways home insurers must change, or answer to the corporate watchdog

On 1 January 2022, insurance claims handling and settling became regulated as a financial service under the Corporations Act 2001, with insurers now held to a standard of claim management considered “efficient, honest and fair”. With this change, ASIC looked at data from more than 218,000 claims lodged between January and March 2022 from six insurers that cover 63 per cent of the Australian home insurance market to establish whether the current practices were up to standard.

According to ASIC deputy chair Karen Chester, the review found “good practices and poor practices across all six insurers”, and “identified five areas where insurers can and should make immediate claims handling improvements.”

“Importantly, all five areas we’ve identified for improvement are within the insurers’ control,” Ms Chester noted.

The five key improvements ASIC tasked insurers with making are:

• 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
• Better resourcing of claims handling and dispute resolution functions

Ms Chester acknowledged some factors that impact claims handling are outside of insurers’ control, which is why she said the body is focused on issues that can be addressed by the corporations.

Many of the challenges can begin to be remedied by maintaining adequate staffing levels and ensuring staff are properly trained for both the logistic and emotional needs of the job, which often involves dealing with customers experiencing extreme distress.

The period during which ASIC conducted its review, from January to March 2022, encompassed some of the disastrous flooding experienced that year by communities in Queensland and NSW. Ultimately, 43 per cent of the claims handled during that period were due to severe weather events.

And while Ms Chester acknowledged that insurers themselves are under pressure due to worsening weather conditions, she added that regrettable as it is, severe weather should be considered the “new normal” and companies need to plan their resources accordingly.

“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,” Ms Chester stressed.

Noting that they are not looking to enforce an unmeetable standard, the deputy chair added “an insurance claim doesn’t have to be handled perfectly, but it must be handled well”.

The regulator noted that it has commenced several investigations related to insurance claims handling practices, and will be looking into potential unfair contract terms relating to maintenance and ‘wear and tear’ issues, and reviewing the performance of insurers dispute resolution functions.