4. Policyholders' experiences with insurers' claims processes and handling
   1. The 2022 floods highlighted significant failures on the part of insurers when dealing with their clients, some of whom are yet to return to their homes years after the floods.
   2. The claims process can be complex and include multiple touchpoints, including third parties, which creates the risk of inconsistent experiences, and missed or repeated steps. After a claim is lodged, the claims process may include:

• Emergency make-safe works arranged by the insurer;
• Assessments of damage and causation which may require specialist reports, such as hydrology and engineering reports;
• A claims decision by the insurer;
• Scope of works setting out repairs or rebuild works to be completed;
• Repairs or replacements conducted by an appointed builder; or
• Offering of a cash settlement.[1]
  3. This chapter discusses common issues raised with the Committee by policyholders, consumer advocacy groups, insurers, regulators and independent bodies related to the above processes and where there have been opportunities for improvement identified. The Committee acknowledges that some of these issues are not unique to the experiences of policyholders impacted by the 2022 major floods and that progress has been made by insurers to improve their processes since the floods, including improvements recommended in Deloitte’s report on insurer’s preparedness for CAT 221 and the Australian Securities and Investments Commission’s (ASIC) review of claims handling.
  4. Regulation of insurer’s claims handling processes has undergone some changes in the last few years. Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommending insurance claims handling should not be excluded from the definition of ‘financial services’, the Corporations Act 2001 was amended to make claims handling a financial service.[2] The Royal Commission identified several areas of concern regarding insurers claims handling, including cases where insurers had failed to handle claims in a fair and transparent manner, failing to act in an efficient, professional and practical manner, and breaching the insurer’s duty of utmost good faith, as well as delays in claims that resulted in consumer detriment.[3]

What makes a great claims experience?

4.5The General Insurance Code of Practice (the Code) commits the general insurance industry to the promotion of trust, integrity and respect through being clear, transparent, fair and timely in its communications with the community as well as treating the community with respect, dignity and sensitivity.[4]

4.6For most policyholders, making a claim is the most significant interaction they will have with their insurer. In the context of a natural disaster, policyholders expect their insurer to facilitate the insurance claims process to be speedy, easy to navigate, transparent, empathetic to their experiences and responsive to their needs.

4.7The Deloitte report found that policyholders who had a positive experience with their insurer often experienced:

• Empathy displayed by the claim handler, assessor and other staff members;
• Regular communication including timely claim progress updates;
• Proactive and efficient management of claims and active management of third-party suppliers; and
• Clear and informative communication through the process, including the provision of clear justification for adverse decisions.[5]
  8. As part of the inquiry process, the Committee heard from individuals from local communities that were impacted by the floods. Statements from these individuals highlighted the emotional and financial impact caused by a claims process that did not meet the expectations of these policyholders.
  9. One policyholder impacted by the floods in Maribyrnong, Victoria, summarised to the Committee their experience with the claims process:

I'm trying my hardest. How can I settle my claim when I have responses like this? What am I doing wrong? I don't think I've done anything wrong. I have asked, asked and asked. I have exhausted every avenue. I work in the insurance industry and there are red-tape, fluffy-waffle conversations with no determination—you've got to be joking me. How do genuine people on the street, who have absolutely no insurance experience, deal with this sort of BS, for want of a better word? We all know what that is. It's probably not professional to say, but that's what it is.

How many claims have been settled with insurance companies not adhering to utmost good faith claims handling processes? How many genuine complaints have been ignored? How many people are fed up? After 18 months, clearly I am, honestly. How many people have just said: 'I'll take the money and I'll fix it myself. Don't worry, thanks for nothing.[6]

4.10Another policyholder, from Eugowra in the heavily impacted Central West region of New South Wales, similarly told the Committee:

I do believe that all insurers need to start listening or supporting their policyholders. When a policyholder goes to them, it's in that policyholder's time of need and it's about ensuring they respond with respect and dignity to ensure the policyholder is appropriately managed and dealt with through that time of need. What we've all seen is that policyholders are being treated poorly in response to their making a claim, and that's not why we take insurance. We believe that there's a backstop there, and that's why we take insurance out, to provide that level of reassurance.[7]

Factors that influenced insurers’ performance

4.11There were over 300,000 claims made in relation to the 2022 major floods, with over 230,000 claims made in relation to the first declared flood event for the year, CAT 221. The number of claims related to CAT 221 was unprecedented and added to an already high number of open claims from six declared events in 2021.[8]

4.12The volume of claims arising from CAT 221, and the three major floods that followed, tested insurers’ claims handling capabilities, including their ability to scale resources up quickly following catastrophic level natural disaster events, as well as insurers’ systems and practices for managing, monitoring and escalating claims, insurers’ ability to meaningfully communicate with policyholders and the adequacy of insurers’ oversight of third-party contractors undertaking work on behalf of insurers when there is a very large number of claims, many of them complex.

4.13Insurers needed to scale up their claims workforce by up to 87 per cent to meet the demands of CAT 221 at a time when demand for labour across employers remained very high.Insurers were further challenged by ongoing supply chain shortages and high demand for labour and materials in the construction industry. Rental vacancies were also at historic lows in many of the regions impacted by floods.[9] The challenges and obstacles to recovery are discussed in Chapter 2.

4.14Overall, the Committee considers that insurers resolved a high proportion of claims satisfactorily and, in most cases, performed well in challenging circumstances. The Committee heard stories of staff across all insurers meeting and often exceeding the expectations of their customers, including staff that took proactive, innovative approaches to support policyholders impacted by a flood.

4.15The number of cases that involved poor quality of service or poor outcomes are, as a proportion of the total claims, relatively low, but still a substantial number in absolute terms. For many of the policyholders that had a poor claims management experience, their interactions with their insurer impeded their recovery and, in some cases, resulted in adverse health impacts.

4.16This chapter focuses on common concerns raised about insurers’ handling of policyholders’ claims and makes recommendations for improving insurers claims handling practices.

Insurers processes to accept and deny claims

4.17This section discusses key issues raised during the inquiry about the processes used by insurers when they assess and consider a claim.

4.18In lodging a claim, the policyholder has the initial onus to prove, on the balance of probabilities, that the loss or damage falls within the terms of the policy. The insurer is then liable for the loss unless it shows that an exclusion or limiting condition applies. The insurer has the onus of proof in establishing the application of the exclusion, also on the balance of probabilities.[10]

4.19Some of the most common reasons provided for complaints that were made in relation to denied claims were about the source of the initial inundation causing damage (which could be from stormwater runoff, rainwater runoff or flood) or the application of an exclusion, including a lack of maintenance and wear and tear, and whether the policyholder was covered for the event. Where questions over coverage arose, insurers generally obtained hydrology and other expert reports to inform their consideration of the claims and, if an insurer denied a claim, to support the evidence base justifying the insurer’s decision. The quality and consistency of the expert reports that were informing insurers’ decisions to deny claims was also an area of concern raised throughout the inquiry.

Interpretations and uses of key policy terms

4.20In 2011, following significant flooding mostly in Queensland in 2010-2011, the Natural Disaster Insurance Review (NDIR) recommended a standardised definition of flood, and in 2012 a legislated definition of flood was introduced. The driving force behind this standardisation was the common experience of policyholders being affected by the same flood, both having flood cover and yet receiving different claim outcomes, which advocates argued were a result of insurers having different definitions of flood in their insurance contracts. Legal Aid Queensland told the Committee that, prior to the 2010-2011 floods, there were between 10 and 15 different definitions for flood.[11]

4.21The term ‘flood’, when used in insurance contracts, is currently legislated to mean:

the covering of normally dry land by water that has escaped or been released from the normal confines of:

• any lake, or any river, creek or other natural watercourse, whether or not altered or modified; or
• any reservoir, canal, or dam.[12]
  22. Stakeholders agreed that the introduction of a standard definition for flood had ‘significantly reduced’ the number of disputes in Queensland and raised awareness among consumers about their coverage for flood[13]
  23. A flood is not the only form of water damage experienced in a severe weather event that may be covered (or not) by an insurance policy. Most insurance policies will include terms such as ‘stormwater’, ‘storm-surge’ or ‘rainwater run-off’ however the exact definition of these terms may differ by insurer. More generally the common elements of other storm related definitions will extend to:

• Storm – a range of activities that can cause damage such as rain, wind, hail, snow and flash flooding as well as different types of flood events such as cyclones and tornadoes.[14]
• Storm-surge – a rise above the normal water level along a shore resulting from strong onshore winds and/or reduced atmospheric pressure, generally accompanying a tropical cyclone as it comes ashore.[15]
• Stormwater and rainwater run-off are often used interchangeably to refer to rainwater that runs off land and flows away from the area where it originally falls.[16]
  24. The flooding events in 2022 were caused by very significant widespread and persistent rainfall, which meant that many properties were exposed to both rainwater run-off and flood.[17]
  25. Insurance Australia Group (IAG) noted many of its policies ‘do not explicitly define rainwater run-off’ as it is ‘implicitly’ included in the definition of storm. Further, it was noted that certain policies use slightly different definitions for storm surge.[18] While this provides options for coverage for policyholders it can contribute to confusion about coverage for flood and other water inundation events.[19]
  26. During the inquiry, many stakeholders believed the terms ‘storm surge’ and ‘rainwater runoff’ should be standardised as flood has been. There is a view that some of the disputes that occurred prior to standardising the definition of a flood have now ‘stepped sideways’ into other water inundation terms. Standardising these terms, in the view of Legal Aid Queensland, would potentially resolve a lot of disputes and improve consumer’s understanding of their coverage.[20] The Australian Financial Complaints Authority (AFCA) also believed there are ‘some real challenges’ in the way that policies are drafted and written and that any standardisation would be of benefit if it can create ‘simplicity and make it easier for customers to make choice about their policies’.[21]
  27. The Insurance Council of Australia (ICA) advised there are various considerations which may influence whether standardising definitions for other forms of water inundation would provide an overall benefit to consumers, noting that standardisation ‘may provide benefits in terms of comparability of insurance coverage’ but may also have an impact on competition across the sector as well as the pricing of premiums, and therefore would require careful and close consultation with industry.[22]
  28. At the time of this inquiry, Treasury has been undertaking consultation on whether there are natural hazard terms that should be standardised when used in insurance contracts (possible terms include fire, storm, stormwater and rainwater run-off), and reviewing the standard cover regime. This work is part of a broader package of reforms announced by the Australian Government in 2022 to improve consumer understanding of insurance products.[23]

Fair wear and tear and maintenance obligations

4.29The exclusions specified in insurance contracts determine whether a property is covered for the loss incurred when a claim is made.

4.30Wear and tear and exclusions are designed to keep an insurer from being liable when damage results from the natural deterioration of the property due to normal use over time, while a lack of maintenance exclusion protects insurers from being liable for a policyholder’s failure to properly maintain, repair or replace deteriorated or defective parts of the property.

4.31Insurers may cite wear and tear and poor maintenance exclusions when damage is incurred from flood events when it believes the damage would not have occurred had a part of the property been better maintained, and will not cover repairs for damage that is believed to be normal wear and tear of the property.[24]

4.32When a policyholder lodges a claim, it is initially their responsibility to prove the loss or damage falls within the terms of the policy (on the balance of probabilities). The insurer is then liable for the loss unless it can show that an exclusion or limiting condition applies. The insurer has the onus of proof in establishing the application of the exclusion (on the balance of probabilities).[25] Where a policyholder has not maintained their property to a reasonable standard, and the insurer can show evidence that this has contributed to the level of damage that was incurred during the claim event, the insurer can deny all or part of the claim.

4.33When taking out home and contents insurance, policyholders are in effect agreeing to maintain and ensure the adequate upkeep of their property, including to repair damage which may lead to further damage to the property in the event of a storm, flood or other extreme weather event. Exclusion clauses in insurance contracts provide incentives for owners to properly maintain their properties, thus reducing the risk of property damage when an event occurs.

4.34However, exclusion clauses are often undefined, meaning policyholders don’t necessarily know what their insurer considers a reasonable level of maintenance, and the application of an exclusion is only known when the insurer makes a decision on a claim. Insurers either provide limited information about what they consider to be a reasonable level of maintenance or advise a level of maintenance that most policyholders would find difficulty implementing in practice.

4.35This combination of factors may underpin why claim denials based on wear and tear and lack of maintenance clauses were identified in evidence to the Committee as making up a significant proportion of the complaints that went to internal dispute resolution and on to AFCA.

4.36Throughout the inquiry, stakeholders spoke about the issues they identified came up the most frequently during the major floods, including policyholders’ lack of awareness of insurers’ expectations regarding maintenance, the inconsistent application of exclusions by insurers when considering a claim, insurers placing the onus on policyholders to establish that an exclusion does not apply and reliance by insurers on poor quality expert reports.

Awareness of maintenance expectations

4.37The Committee heard that often policyholders will not know what they need to do to maintain their property to a level that would be considered acceptable by their insurer to ensure they have insurance cover.[26]

4.38For example, Caxton Legal Centre told the Committee that while many policyholders understood some maintenance of their properties was expected, such as cleaning out of gutters periodically, in its experience policyholders ‘did not have an understanding on what more they could do to maintain their home’.[27] This often became an issue at the time of a claim being made. In discussions with the Committee, Caxton Legal Centre elaborated on the expectation of insurers and the understanding of consumers:

I don’t think most of us know what good maintenance on our homes is. I think there’s a big gap there, and then there’s of course a very big gap for older people and people with vulnerabilities. Clients are quite insulted sometimes when they're told its wear and tear or maintenance; it's almost like a personal slight against them. Also, I think people are very shocked when there is a problem at their home that they don't believe they caused where they don't feel like they did anything wrong, and therefore the insurer should cover it.[28]

4.39Both Legal Aid Queensland and Legal Aid New South Wales also encountered policyholders who were unaware of the maintenance and wear and tear obligations under an insurance policy or were not sure what actions were required by them to meet their obligations.[29]

4.40Various reviews on general insurance issues have also reported a lack of consumer awareness regarding the application of wear and tear and maintenance clauses in insurance contracts. ASIC’s review of home insurance claims, conducted in 2023, observed that participants were generally unaware of their obligation to reasonably maintain their property, what the obligation entailed and that a claim could be denied if the condition of their property failed to meet this obligation.[30]

4.41The Deloitte report also highlighted maintenance and wear and tear as a frequently raised friction point from its engagement with affected policyholders and community representatives. The Deloitte report noted that in some circumstances, policyholders believed that they had performed regular maintenance and that the insurers’ maintenance expectations were ‘unreasonable’ or the weather event and flooding caused the damage.[31]

4.42The Financial Rights Legal Centre’s review of general insurance definitions in 2021 found that there was ‘almost no understanding’ amongst policyholders about their obligations to maintain a property and that the few insurance products which articulated the appropriate maintenance required had considerable variability.[32]

4.43Insurers acknowledged consumer awareness of their obligations to maintain their properties was low. Suncorp told the Committee that ‘everyone believes their home is well maintained or has been built to code’ and that insurers and policyholders views around maintenance is ‘one of the big logjams’ in terms of resolving complaints.[33]

4.44To improve consumer awareness, the common recommendation from stakeholders was that insurers should provide clear guidance to policyholders on what is required to maintain their property to an adequate standard.[34] This is to ensure that at the time a claim is being made, policyholders have been made aware of the impact that a lack of maintenance can have on their claim.

4.45Some insurers have developed or published general maintenance advice on their websites for policyholders to consider, including how often maintenance should be undertaken for certain elements of a property.[35] However, there are differences in how this information is presented to policyholders including the accessibility of the information from the insurers’ website and the level of detail provided.

4.46Legal Aid Queensland, Disaster Legal Help Victoria and Caxton Legal Centre told the Committee that all insurers should be providing clearer guidance to policyholders about maintenance clauses, including the potential for unrepaired damage to roofs, gutters or stumps to impact the outcome of a storm or flood claim.[36] This was an important action to take given the number of people that do not read the Product Disclosure Statement (PDS) and are reliant on that relationship of trust that they see with their insurance company.[37]

4.47Legal Aid Queensland suggested insurers use advertisements to inform policyholders about their maintenance obligations:

I notice there are some ads that are starting to be put in the media—and it may be Suncorp or AAMI, I'm not sure—where they're essentially saying: 'When you arrive home, look at your roof. Do you realise the stress your roof is under in protecting you? Look after it.' I think that could be taken further, even if it's a fact sheet from insurers going: 'Do you understand for you to maintain your property properly, you need to get someone up on the roof every couple of years? You need to get someone in every two or three years.' In Queensland a big issue is stumps. You need to get someone in every two or three years to look at the stumps in order to make sure, when something goes wrong, we can help you the best.[38]

4.48There is also evidence that many policyholders do not think about the additional costs required to maintain a property. Financial Rights Legal Centre’s report on standardising general insurance definitions found that consumers believed that paying an insurance premium bought coverage without further costs. It believed more needed to be done to make homeowners aware of the costs of maintaining a property in terms of time, effort, finances and the hiring of professionals.[39]

4.49Insurers were open to more education programs for policyholders on their maintenance obligations, for example, Auto & General Insurance Company Limited (A&G) submitted that consideration could be given to programs on maintenance and risk mitigation to reduce potential damage from weather events.[40]

Pre-existing damage and reasonable condition

4.50The Committee received evidence in relation to fair wear and tear and maintenance issues included highlighting both insurers’ and policyholders’ understanding of the risks that exist within properties—particularly older properties. Elements of older properties such as roofs and stumps are more prone to deterioration, or are not regularly considered as part of maintenance by policyholders. Further, policyholders may not have a maintenance history of their property to recognise existing defects, which can only come to their attention when it comes time to make a claim.

4.51The ICA acknowledged that consumer groups have directly raised the issue of fair wear and tear and maintenance in homes with the group. The ICA commented that Australia has an ‘ageing housing stock’, as well as housing stock that uses experimental materials that are deteriorating quickly.[41]

4.52Consumer groups noted that many disputes in relation to fair wear and tear and maintenance exclusions occur in relation to older properties. Legal Aid New South Wales noted that older properties could not be expected to be in perfect condition compared to a newer build that adheres to better standards, and that this needed to be considered and communicated as part of reasonable maintenance expectations.[42]

4.53Policyholders may also be unaware of the defects to their property. Financial Rights Legal Centre, CHOICE, the Consumer Action Law Centre and Westjustice highlighted that policyholders may not have the expertise to recognise issues with their property and that building standards may change over time—which insurers may use to assert a defect clause and deny a claim.[43] This reinforces the need for clearer expectations of reasonable condition for elements of properties.

4.54If certain elements of properties are of issue to an insurer, disclosure to policyholders upfront should be a consideration. The lack of disclosure has caused frustration for many policyholders. For example, an impacted resident from Rochester, Victoria, raised that:

The first thing I believe that needs to happen is insurance companies need to give the same full disclosure to us, their clients, as they expect from us. They state that if we omit anything, then it may further reduce any claim in the future, if not void it altogether. Why don't the insurance companies have to declare the same thing: 'If your building is more than 50 years old, we won't cover your stumps. If this isn't up to code, we won't do this repair et cetera.' [44]

Standard definitions for fair wear and tear and maintenance

4.55Standardising fair wear and tear and maintenance exclusion terms has been suggested by consumer groups to not only improve understanding around coverage, but potentially reduce dispute rates and ensure that insurers are using these exclusions in an appropriate and consistent manner.

4.56The potential benefits of standardising these terms has also been recognised by the insurance industry. The ICA advised at the beginning of the inquiry that it would be submitting an application for Australian Competition and Consumer Commission (ACCC) authorisation for the insurance industry to collaborate on the standardisation of ‘wear and tear’ and ‘maintenance’ clauses. Application to the ACCC is necessary to ensure that the industry complies with relevant competition laws.[45] At the time of this report, the ICA had yet to seek authorisation from the ACCC to collaborate on standardising wear and tear and maintenance clauses.

4.57The ICA noted that if the industry is authorised to collaborate on the development of common terms and common terms are established, ICA members would still need to choose to use the terms in their contracts as the ICA does not have the capacity to bind members to use particular terms.[46]

4.58AFCA supported standardising the terms to ‘support more effective communication’ between insurers and policyholders but warned that ‘it is necessary to temper expectations that standardisation on its own can overcome broader product complexity for consumers’.[47]

4.59Standardisation of key terms in insurance contracts has long been argued for by consumer groups. There was broad support by consumer groups for the standardisation of the terms ‘maintenance’ and ‘fair wear and tear’ throughout the inquiry, including from Legal Aid Queensland, Disaster Legal Help Victoria, Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice.[48]

4.60However, Financial Rights Legal Centre opposed the industry-led approach, instead arguing the Government should lead discussions to ensure full participation by other stakeholders, including consumer groups, and the scope needs to be broadened to capture related terms such as ‘defect’ and ‘pre-existing damage’.[49]

4.61Treasury noted that it could be of great benefit for insurers and consumers if insurers ‘can come together and try to get more clarity around what expectations are for fair wear and tear in a range of different circumstances’.[50] Treasury supported an industry-led approach, noting that if a definition was to be put into legislation, it would be a ‘pretty short and high-level statement’ that may not be enough guidance for the range of circumstances the exclusions can be applied to.[51]

Burden of proof and quality of reports

4.62Maintenance exclusions allow insurers to deny claims where poor maintenance contributed to or was responsible for the damage that was incurred. To be able to rely on a lack of maintenance exclusion to deny a claim, insurers need to be confident that the damage, or extent of the damage, would not have occurred had maintenance or repairs taken place. Expert reports provide insurers with information about how damage occurred, including any pre-existing damage or poor maintenance that may have contributed to or caused the damage, and are a key component of the claims assessment.

4.63A common concern raised by policyholders as well as consumer groups was the regularity with which insurers relied on information contained in poor quality expert reports when making a decision to deny a claim based on a fair wear and tear or maintenance exclusion. The Committee heard repeated accounts of claim denials based on exclusions where the expert report did not explain how the poor maintenance or wear and tear resulted in the observed flood damage, or did not sufficiently provide evidence to verify there was a causal link.[52]

4.64Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice submitted:

In our experience, insurers, assessors and experts assert a lack of maintenance or wear and tear with little to no evidence. Often, there is just a one line justification in the assessor’s report stating the home may not have been properly maintained. It is common to see building assessments where no photographic or other evidence is provided to back up the poor maintenance or wear and tear assertions. The reports that are provided rarely, if ever, explain what maintenance should have been done, how that maintenance would have made a difference and do not outline the causation between the lack of maintenance and the end result. For example, evidence demonstrating that had the property been maintained to some reasonable extent then the damage (or most of the damage) would not have occurred.[53]

4.65A thematic inquiry conducted by the General Insurance Code Governance Committee’s (CGC) studied the claim decisions of insurers during the 2022 major floods period and found that expert reports relied on by insurers to deny claims were often poor in quality and there was inadequate quality control for the expert reports. The inquiry found that insurers overturned almost half of their decisions to deny a claim after a complaint was made.[54] It also found a ‘concerning trend’ in the number of claims denied because of maintenance or wear and tear exclusions, with more than half of the decisions made to deny claims based on these exclusions.[55]

4.66At a public hearing, the CGC shared their expectations regarding the quality control of expert reports:

As for the improvements that we would like to see, one is much greater quality assurance from general insurers in terms of the expert reports. We saw expert reports that didn't have facts and evidence that clearly linked claimed wear and tear or maintenance issues to the denial of the claim. If the claim is going to be denied on those causes, we would expect the expert to be able to show a link between the two. In too many of the expert reports, that wasn't the case, and we would expect general insurers to be very much attuned to that and to make sure that the facts and evidence are clear.[56]

4.67The Committee also heard accounts from policyholders that were initially denied based on a lack of maintenance, but where maintenance, or full replacement of property, had been conducted recently enough that it could not have feasibly contributed to the damage incurred. As ASIC told the Committee, policyholders ‘should not feel like the onus of proof’ is on them and that it was the responsibility of the insurer to explain it in in terms the policyholder understands and provide sufficient evidence and reasoning.[57]

4.68For example, a case study from the Financial Rights Legal Centre detailed a policyholder who had experience damage to their roof where the insurer refused to repair it on the grounds of poor maintenance:

…refused to repair the roof on the basis the damage was caused by poor maintenance of a rusted metal sheet on the roof. Four years ago, Joy’s roof was damaged by a storm and the insurer also rejected the claim on the basis of poor maintenance. Joy said that at the time, she had repaired the roof by replacing damaged metal sheets with new metal sheets. She provided the invoices for the repair work done four years ago but the insurer hasn’t budged.[58]

4.69The Financial Rights Legal Centre believed insurers were shifting the onus to prove whether an exclusion applies onto the policyholder and requiring the policyholder to show evidence of maintenance:

When you have a major flood—I don't care how recently your house was built—damage happens. It is the insurer's job to show that, had you recently re-sarked your chimney…the water would not come in. But they don't ever take that step. They just say, 'The roof wasn't well maintained. Claim denied.' And then the burden shifts to the customer to show, 'Actually, I just had my roof looked at two years ago. You paid a claim two years ago; you never said anything about my roof.' That's not how the law works, and insurers are completely negating their responsibility here. Of course, most customers don't find us and most customers don't go to court, and they don't realise that the burden of proof has been wrongly shifted to them.[59]

4.70Several stakeholders told the Committee about the lack of options for policyholders to share the maintenance they have conducted or report on the condition of their properties to their insurer before a claim is lodged. Community Plus Queensland noted:

I have to take photos of my gutters or the invoice from the man that cleaned out my gutters to prove that I've done that. How many of us do that? I know that I didn't do that before. I do that now because I don't want any implication, but many of the people who are sitting behind me and people that are sitting in front of me probably don't do that. So that has been the major one that we've seen this time: the maintenance issue that you have to prove that you've maintained your property, which is a struggle for any of us to do. With double-storied houses, you can't get up and take a photo, but you can't prove yourself unless you take a photo of yourself cleaning out the gutter. I think it was clearer this time who was covered and who wasn't covered, but the maintenance issue for us was certainly a large issue.[60]

4.71Treasury told the Committee that while expert reports are one component of a claims assessment, they should not be the only evidence relied on to inform an insurer’s decision for a claim outcome.[61]

4.72AFCA considered that setting consistent minimum standards for insurers on the scope, content and quality of expert reports whether in the form of regulatory guidance, code standards or legislative requirements, as alternative opportunities to consider to respond to identified issues with expert report quality.[62]

4.73There was also support for mechanisms policyholders can use to advise insurers about maintenance that has been conducted or to help policyholders keep track of when they have undertaken maintenance. Stakeholders were keen to see these options being provided by insurers in addition to clearer communication from insurers about policyholders’ maintenance obligations.

4.74To improve the quality of reports and potentially reduce disputes alongside other measures such as standardising fair wear and tear and maintenance terms, stakeholders identified necessary areas for improvement. It is evident that insurers reports should be evidence based and that denying claims based on these exclusions, whether in full or partially, should be clearly explained to policyholders.

4.75Legal Aid Queensland, in addition to having a standard definition of wear and tear and maintenance, noted it was ‘incredibly rare’ to see a report that adequately met the burden of proof.[63] Legal Aid Queensland put forward that these clauses should be revised in a way that insurers would need to identify the damage that had been caused, what maintenance should have been done, and the casual link between them.[64]

4.76The CGC shared their expectation of greater detail in insurers’ expert reports based on what it had seen:

As for the improvements that we would like to see, one is much greater quality assurance from general insurers in terms of the expert reports. We saw expert reports that didn't have facts and evidence that clearly linked claimed wear and tear or maintenance issues to the denial of the claim. If the claim is going to be denied on those causes, we would expect the expert to be able to show a link between the two. In too many of the expert reports, that wasn't the case, and we would expect general insurers to be very much attuned to that and to make sure that the facts and evidence are clear.[65]

4.77These initial observations made by the CGC were later reiterated in its August 2024 report Oversight of External Experts, which made seven recommendations to ensure that insurers’ external experts only provide factual evidence based on the area of expertise, and do not provide recommendations on the outcome of a claim (except where delegated and appropriate); improve training and understanding of external experts; and improvements to insurers’ monitoring and quality assurance processes to strike a better balance between quality, cost, and time efficiency.[66]

4.78Another aspect of wear and tear and maintenance exclusions is the operation of section 46(2) of the Insurance Contracts Act 1984. Section 46(2) states that:

Where, at the time when the contract was entered into, the insured was not aware of, and a reasonable person in the circumstances could not be expected to have been aware of, the defect or imperfection, the insurer may not rely on a provision included in the contract that has the effect of limiting or excluding the insurer’s liability under the contract by reference to the condition, at a time before the contract was entered into, of the thing.[67]

4.79There is good reason to believe that the operation of s46(2) in practice is limited by the words ‘at a time before’. In a professional note, John Berrill (one of the members of the NDIR panel) has written about the impact of the decisions in Nelson v The Hollard Insurance Company Pty Ltd [2010] NSWSC 199 and Zhang v Popovic [2016] NSWSC 407. He concludes that:

The impact of the interpretation of “by reference to the condition, at a time before the contract was entered into” in s 46(2) has allowed insurers to completely bypass the consumer protections intended by s 46 by simply removing any reference to the words “pre-existing” or any other temporal wording referring to a time before the contract was entered into. …

For example, for a flood claim where the insured has pre-existing defective stumps on their home which they had no knowledge of prior to taking out the policy, the effect of the case law is that the mere fact that the clause is drafted such that it could also apply to stumps which deteriorated after the policy commenced, means s 46 has no operation to the insured’s claim.[68]

4.80The operation of section 46(2) and its relationship with section 54 of the Insurance Contracts Act 1984 is an issue that the Australian Government could usefully examine in light of how many long-running disputes in relation to wear and tear and maintenance emerged from the 2022 floods.

Hydrology reports

4.81Hydrologists often play a critical role in the claims process for policyholders without flood cover. For insurers that allow policyholders to opt-out of flood cover, hydrology assessments are needed to distinguish between damage caused by riverine flooding and rainwater runoff. While the ultimate inundation is usually flood, it is often the initial inundation that is in dispute. A hydrology report can help to determine whether the likely source of the initial inundation was flood or not. This is because even if the initial inundation is at a low level, it can make a significant difference to the outcome for many complainants.[69] Appointed hydrologists should have the expertise and qualifications to determine the initial cause of water entry.[70]

4.82Stakeholders raised concerns about delays in obtaining hydrology assessments, hydrology reports lacking in detail about the causation of water damage, and the impartiality of hydrologists, noting insurance firms typically contract and pay hydrologists to undertake the assessments.

Challenges in obtaining hydrology assessments

4.83The scale and complexity of the major floods meant claims were delayed as insurers waited for assessments to determine the cause of damage.[71] For CAT 221 alone, Allianz obtained over 1,800 individual property hydrology reports with delays of 12 weeks or more for hydrologists to attend properties for site inspections.[72]

4.84There were also delays in policyholders receiving their hydrology reports after a hydrologist attended the property. As part of the Committee's survey, respondents were asked how long it took to receive a hydrology report after a hydrologist inspected the property. 25 per cent of respondents reported that it took 3-4 months, 15 per cent reported 5-6 months, and 13 per cent reported it took longer than 6 months.[73]

4.85Allianz advised that after consulting with AFCA, it had obtained area-wide hydrology reports for the Lismore, Casino, Broadwater, Woodburn and Mullumbimby areas to expedite claims for over 1,000 policyholders. However, policyholders still had the option to have an individual property hydrology assessment undertaken (paid for by Allianz) which most policyholders elected to have done.[74]

4.86AFCA advises insurers that it is preferable they obtain a site-specific hydrology report for claims that may be susceptible to a dispute to ensure the denial of a claim is supported by evidence. However, where a site-specific report is not available, or obtaining one will cause unreasonable delay to the resolution of the claim or complaint, then regional or area hydrology reports may be considered as well as other contemporaneous information, such as witness reports and CCTV footage.[75]

Quality of hydrology reports

4.87Many policyholders that required hydrology assessments on their properties described insufficient inspection processes undertaken by hydrologists or reports that didn’t link the event to the cause of damage. One policyholder in Eugowra told the Committee:

When the hydrologist came out to our place a number of weeks after the flood, she walked around our property, listened to me talk and then left. She didn't go up to the stock route or look at which way the fences fell, according to the flow of water or anything like that. She also doesn't have any photos of that in her report.[76]

4.88They then recalled discovering that most of the hydrology reports done by same company were identical to others in town:

There was discussion with other people in town and, when we compared our hydrology report with theirs that had been done by the same company, other than the first page, which directly related to our own individual cases, everything about the hydrology reports were the same. They were just a blanket six pages or so with no variation.[77]

4.89Mr Eccleston, a retired civil engineer in Central West NSW, noted hydrologists made recommendations to insurers without providing details about how the type of inundation caused the damage in the roughly 10 reports he reviewed for locals:

There was very little technical discussion as to how they reached their recommendation and the results, and that left a very big hole technically and professionally. I think a lot of these hydrologist reports are wanting…One particular report endeavoured to undertake some complex modelling, but, because of the time limitations and, obviously, the funding, they admitted that they were restrained.[78]

4.90Legal Aid New South Wales recounted cases where it believed insufficient weight had been given to eyewitness accounts about the movement of water and that more weight was given to other evidence.[79]

4.91Policyholders also questioned the quality of reports when the reports were inconsistent for policyholders that lived near each other and when received different claim outcomes. This experience was recounted by Lismore’s Mayor:

This isn't an uncommon story in South Lismore or North Lismore. Three generations of the same family live in the same street, virtually next door to each other—same insurance company, same level of coverage, same hydrology report. One family got full coverage with home and contents; next door, the family…got contents coverage only; and the third family got no coverage at all. This is the same hydrologist, same insurance company, but three totally different outcomes in the same street of our city. This is inherently the problem we're dealing with: how can you, after one event, have such varying and different outcomes? That is not only across the Lismore CBD and the Lismore LGA; every one of our local government areas could tell you a thousand stories exactly the same as that one. Inherently this is the problem we're dealing with.[80]

4.92AFCA received a number of complaints where an insurer had relied on an expert report in denying a claim, where the report was of poor quality or lacked sufficient information. In discussions with the Committee, AFCA commented that:

There were cases where hydrology reports were used to deny claims but without appropriate due diligence being undertaken. For example, the report did not consider or address photographic evidence provided by the consumer or other eyewitnesses as evidence about the timing of the initial water damage. It looked to us in denying a claim under an exclusion that insurers were often shifting the onus of proof on to consumers rather than it being the other way around; we expect insurers to be able to rigorously support any decisions to deny a claim.[81]

4.93When considering a complaint AFCA may undertake site visits to the policyholder’s property to help collect information to decide the cause of damage, but this may not be feasible for every complaint impacted by floods.[82] In addition, AFCA’s processes provide for an exchange of information, giving the policyholder access to any hydrology report or alternative information relied on by the insurer.[83]

Impartiality of hydrology reports

4.94For policyholders that required a hydrology assessment as part of their claim, the majority relied on the hydrology report obtained by their insurer. Insurers’ records show that only a small number of policyholders obtained their own hydrology reports.[84]

4.95Some consumer advocacy groups told the Committee they were concerned about the potential for reports that reflected the interests of insurers, because insurers are the ones that pay for the hydrology reports and provide hydrologists with work following a flood event.[85]

4.96This fear was compounded when some policyholders commissioned their own hydrology reports, only to learn their insurer would not accept the report as part of their claim.[86]

Options for improving access and quality of hydrology reports

4.97Access to timely hydrology reports is essential for the fast resolution of a claim where there is no flood cover. To ensure the right claim outcome, it is also important for hydrology reports to include a thorough assessment and clear determination about how the damage was incurred. Hydrology reports should provide a fact-based, independent assessment, uninfluenced by the interest of either the insurer or policyholder.

4.98Some stakeholders supported the expansion of the use of area-wide hydrology reports to speed up claims processes. Other stakeholders supported insurers improving the coordination of obtaining hydrology reports for multiple properties across brands, which Suncorp advised the Committee it does for its brands such as Apia and AAMI.[87]

4.99Others supported the concept of insurers coordinating joint reports for an area-wide hydrology report or even property specific hydrology reports for all insured properties on the same street or in the same zone. Stakeholders noted these solutions could address the challenges posed by insurers having access to a limited number of hydrologists in Australia and help expedite claims outcomes for policyholders.

4.100Both Engineers Australia and Suncorp told the Committee that the coordination and sharing of hydrology reports between insurers could potentially pose risks. Engineers Australia explained that while an overall joint overview report can work, street-by-street reporting can be problematic due to the complexities and differences in policies and properties, stating:

…it may well be that the difference relates to the physics…of the structure that may well have been damaged, and understanding how that inundation has occurred. For example, one structure on one property might be set up 400 millimetres above the ground level, and not experience inundation to a certain level, whereas another property next door might be built as slab on ground with no freeboard above ground level, and it's possible that in the second case inundation occurs by way of stormwater before the floodwaters arrive. That would, in my mind, trigger such that, under the current policies, the property that was built slab on ground with no freeboard actually would get some benefit. I'm not the assessor, but that would be deemed as stormwater plus flooding, and it would probably trigger some benefit.[88]

4.101Suncorp also saw limited value in obtaining shared reports as typography and building heights can materially vary between properties, meaning insurers may not be able to rely on it to make a claim decision.[89] However Suncorp did see opportunities for the insurance industry to coordinate the deployment of hydrologists to properties for efficiency:

In terms of the need for a hydrologist, you really do have to have a hydrologist report for an individual risk address. There's more we can do…to provide more coordination amongst the industry. We certainly do that amongst our brands. If we need a hydrologist under Apia or AAMI we try to coordinate that so we do it once and we do it efficiently within the street or the suburb. There may be a role for us to work collaboratively with the ICA to provide a pool of hydrologists that can roll out the need for those services more efficiently.[90]

4.102A&G also believed the ICA could be ‘well positioned to play a leading role’ in improving access to a centralised panel of hydrologists and would provide an opportunity to foster efficiencies and consistency across the industry.[91]

4.103Other recommendations included the provision of a specific pathway for policyholders to dispute hydrology reports (other than going through insurer’s internal dispute resolution processes or external dispute resolution), or to have hydrology reports independently reviewed, while others believed government support should be provided to fund a panel of hydrologists, because they believed this would remove the contractual relationship between insurers and hydrologists and improve outcomes for consumers. Alternatively, the panel could support assessments that are complex and may benefit from a second opinion.[92]

Committee comment

4.104At the outset, the Committee wants to acknowledge the extensive evidence received that poor insurance claims experiences after the 2022 major floods have had profound, negative and lasting impacts. Delays in claims processes, inconsistent treatment of claimants by the same insurer, or by different insurers for people in the same location, and arbitrary application of exclusions have led to heartache, mental health impacts and financial devastation, as well as severe impacts on family and social life. Families continue to be unable to reside in their homes and participate in their communities. The variability in quality of expert reports, and their use to deny or support claims, has led to confusion, anguish and extended review processes, which have exacerbated the already heavy toll placed on affected households and individuals.

4.105The Committee heard extensive evidence from policyholders, both through submissions and in evidence at public hearings in affected communities, that their lives had been torn apart through adversarial processes that they expected to be supportive, based on years of promptly paid insurance premiums and loyalty to their insurer. These experiences resonate through all of the evidence outlined in this report and inform the recommendations made in all chapters of this report. Insurers must improve.

4.106While the issues discussed in this section relating to the mechanisms used by insurers to accept and deny claims are exhaustive of those raised by stakeholders throughout the inquiry, the Committee has noted various recommendations that seek to address common issues.

4.107The Committee recognises that standardising the definition of flood has been beneficial to policyholders’ understanding of their flood coverage, however these benefits are negated by the fact that insurers are able to define other forms of water damage that can occur during a flood event in different ways. Standardising other forms of water inundation would provide clarity to policyholders and potentially reduce disputes.

4.108It is also evident to the Committee that issues relating to fair wear and tear and maintenance can be complex and frustrating for policyholders, particularly when existing damage issues with properties are not realised until they are progressing through the claim process. What is considered ‘reasonable’ for one property may differ to another due to a variety of factors such as age and the ability of the policyholder to observe damage.

4.109The Committee considers that greater clarity from insurers to policyholders on what is expected of them and standardisation of these terms may assist in improving policyholders’ understanding as well as encouraging better consistency and quality in the expert reports that insurers are relying on for their decision-making.

4.110Where maintenance is not observable and is highly infrequent, the Committee is of the view that there should be a presumption of coverage by insurers unless exceptional circumstances can be established. It should be noted that this may have an impact on premiums for some policies (for example those with older houses) but that the trade-off is that it will reduce the likelihood of dramatically different outcomes for households with the same experience from the same natural disaster but no difference in their observed risk or behaviour. It may be that such a presumption may need to be limited to specific elements of buildings (for example, stumps).

4.111On the issue of hydrology reports, the Committee believes that it remains important that those who rely on hydrology reports to determine whether they are covered for flood damage have access to timely and quality reports. While hydrology reports are less of a concern for some insurance policies offering comprehensive flood coverage that covers all forms of water inundation, hydrology reports are vital to ensuring there are more affordable insurance options for households.

4.112There are potential avenues that could be explored for improving the deployment of hydrologists after major events to ensure that policyholders who require hydrology reports for their claim have access to timely, accurate and quality reports.

4.113The Committee recommends the Australian Government define the following terms in the Insurance Contracts Act 1984:

• All major forms of water damage, including “rainfall runoff”, “storm surge”, “tidal surge” and “riverine flood”.
• Key terms relating to exclusions relating to the maintenance of the property including “wear and tear” and “lack of maintenance”. The Committee recommends that the Insurance Council of Australia accelerate its work with the Australian Competition and Consumer Commission in developing and approving the standardising of these terms and that consumers be provided with greater clarity in relation to the meaning of “pre-existing defect and/or damage”.

4.114The Committee recommends that:

• the Australian Government legislate a requirement for general insurers to provide policyholders with information regarding insurers’ expectations of policyholders conducting “reasonable maintenance” to their property and the potential consequences for claim outcomes if a reasonable level of maintenance is not undertaken, and
• the Insurance Council of Australia in conjunction with the Australian Securities and Investments Commission and key consumer group representatives develop clear guidance regarding ‘reasonable maintenance’ across insurers, including for roofs, gutters, fences and stumps.

4.115The Committee recommends that a distinction be made in the General Insurance Code of Practice (the Code) between aspects of properties where maintenance is:

• Observable (for example, roofs and gutters) versus where it is not observable (for example, typically, stumps).
• Where regular upkeep is reasonably within the remit of the householder or business versus where maintenance is infrequent, costly and highly irregular (for example, stumps).

Where maintenance is not observable and infrequent maintenance is required, there should be a presumption of coverage by insurers unless exceptional circumstances can be established. It should be noted that this may have an impact on premiums for some policies (for example, for older houses) but that the trade-off is that it will reduce the likelihood of dramatically different outcomes for households with the same experience from the natural disaster while making no difference to the observed risk or behaviour of policyholders.This presumption should be reflected in the industry-wide guidance issued under Recommendation 2.

4.116The Committee recommends that the Australian Government consider amending Sections 46 and 54 of the Insurance Contracts Act 1984 so as to better give effect to the original intent of the provisions. This could reduce unintended, arbitrary divergences in claims outcomes based on wear and tear and maintenance exclusions at odds with reasonable consumer understanding of their coverage.

4.117The Committee recommends that Engineers Australia in conjunction with the Insurance Council of Australia develop guidelines for hydrologists that are providing insurers with hydrology reports relating to flood and storm claims, with a view to providing a more robust evidence base for insurers to rely on to make claim decisions. These guidelines should be shared with state and territory governments and appropriate authorities such as planning agencies and resilience authorities.

This could include the following matters:

• The appropriate qualifications and experience of the hydrologists that are relied upon to provide expert reports.
• In order to better use scarce hydrologist resources, the potential for reports to jointly cover multiple properties, particularly where they are co-located and were affected by the same flow of water. Where appropriate, such reports should acknowledge differential considerations across properties.

4.118The Committee recommends that the Australian Securities and Investments Commission produce regulatory guidance clarifying that insurers cannot rely solely on hydrology and expert reports to deny a claim where the report has not properly linked the damage observed with the cause of the damage, consistent with Recommendations 75 - 78 of the Independent Review of the General Insurance Code of Practice (the Code).

That the Code provisions in relation to the appointment of experts be strengthened to ensure that:

• the purpose of the Code include the intent that experts are to provide independent, detailed, clear, comprehensible and professional assessments of the cause and extent of loss.
• insurers be required to ensure the expertise, professionalism and independence of experts appointed by them.
• expert reports are in a standardised format to improve consumer accessibility and understanding.
• clauses 161 and 162 of the Code require the insurer to provide policyholders with any expert reports including, but not limited to, any reports that insurers have relied upon to deny a claim in whole or in part.

4.119The Committee recommends the Australian Government establish a mechanism for creating and funding an independent expert panel of hydrologists to undertake hydrology reports if the policyholder disputes the findings of the first report.

• One model for such a panel could be the use of medical panels for compensation cases.
• Government and industry should explore how such a panel could be funded.

4.120The Committee recommends that the General Insurance Code of Practice be amended to require that insurers implement mechanisms to:

• periodically review the evidence relied upon to deny a claim based on lack of coverage under the policy or the application of an exclusion, where a hydrology and other expert report is one component of the evidence, to determine whether reports with insufficient evidence are being given too much weight in the decision to deny the claim
• communicate the level of quality expected by insurers to third parties providing expert reports, and
• more effectively identify concerns with, and provide feedback to, external experts.

Insurers processes to settle a claim

Cash settlements

4.121When settling a claim, insurers generally have two options—to repair, replace or rebuild the damaged property or provide the policyholder with a cash settlement to manage the repair or rebuild themselves. Common reasons for cash settlements include:

• the expected cost to repair or rebuild the property is greater than the sum insured
• at the policyholder’s request, and by agreement with the insurer
• the local council will not allow rebuild or repair
• the insurer can only accept a portion of the claim, for example, when parts of the damage are not covered by the policy.[93]
  122. The Committee requested historical cash settlement data over the past 10 years from insurers. Table 4.1 shows the proportion of home building claims exceeding $50,000 that included a full cash settlement.

Source: Allianz Australia, Supplementary Submission 13.2, p. 4; Hollard Holdings Australia, Supplementary Submission 19.1, p. [2]; Auto & General Holdings, Supplementary Submission 18.2, p. 4; Insurance Australia Group, Supplementary Submission 16.1, p. 2; Suncorp Group, Supplementary Submission 12.1, p. 1; Youi, Supplementary Submission 14.2, p. 3; RACQ Group, Supplementary Submission 15.1, p. 4, QBE Insurance Group, Supplementary Submission 17.3, p. 8.

4.123On the table above, the Committee notes a high degree of variability in the data provided, which indicates insurers are capturing data around cash settlements differently.

4.124Cash settlements offer policyholders with a greater level of control over the repair and rebuild their home. There are no restrictions on the work an owner can undertake, such as repairing like for like, so owners have more flexibility to change aspects of their home if they wish. They may also have more control over which builders are contracted to undertake repairs as the policyholder will have a direct relationship with the builder (instead of requiring insurer authorisation of a builder when the insurer manages the repairs). Taking a cash settlement, also means policyholders have the option not to rebuild and may allow them to relocate.

4.125However, accepting a settlement can pose several risks. Accepting a cash settlement in effect transfers the risks associated with a rebuild from the insurer to the policyholder. This isn’t necessarily a concern when the policyholder has opted for a cash settlement because they have the knowledge and experience to project manage the rebuild themselves. However, for most people, project managing a rebuild or significant repairs to a home can be a challenging and often stressful task, which many people struggle with, particularly when it follows a potentially traumatic natural disaster event.

4.126Project management risks are particularly pronounced in areas that, after a natural disaster, are experiencing conditions that make major repairs or rebuilds more difficult such as: constrained labour markets, supply chain issues and rising and volatile costs. Insurers often struggle to manage projects in such situations which highlights how difficult it is for most households to assume responsibility for overall project management.

4.127Cash settlements can also fail to cover the costs of repairs, if costs increase either through the discovery of previously unknown damage or as a result of rapidly rising prices for labour and materials. There may also be discrepancies between the quotes that can be obtained by an insurer through better negotiating power than an individual could achieve.

Consumer understanding of cash settlement offers

4.128The Code commits insurers to providing policyholders with home building policies with information to help them understand their insurer’s cash settlement offer and how decisions are made.[94]

4.129Stakeholders told the Committee that there were issues with the current process for providing information to policyholders about cash settlements and that policyholders were not aware of the disadvantages of accepting cash settlements.

4.130Since 1 January 2022 insurers have been required to provide a Cash Settlement Fact Sheet (Fact Sheet) to policyholders who are offered a cash payment to settle part or all of a general insurance claim, in accordance with the Corporations Act 2001.[95] The Fact Sheet must be given to the client at the time of the offer in writing, and must contain:

• options for settlement legally available under the insurance product (such as having goods repaired or replaced, or to receive a cash payment);
• contain the sum insured under the insurance product;
• the amount of the cash settlement in total and as a breakdown of each component (such as sum insured, emergency payments and ex gratia); and
• a statement that the client should consider obtaining independent legal or financial advice before agreeing to the settlement.[96]
  131. Consumer advocates, financial counselling and legal aid groups raised concerns that that the current Fact Sheet does not provide sufficient information to ensure that policyholders who have survived a traumatic event are able to provide genuine informed consent and argued for revision of the Fact Sheet with input from consumer groups to better inform policyholders about the benefits and risks of accepting cash settlements.[97]
  132. Disaster Legal Help Victoria also advocated for the inclusion of information that the insurer is not able to guarantee the quality of work undertaken by builders following a cash settlement, and considerations for policyholders that have a mortgage.[98]
  133. Some stakeholders believed renaming the Cash Settlement Fact Sheet to remove the term ‘Settlement’ would reduce confusion for policyholders who are provided with smaller emergency or partial payments throughout the claims processes.[99]
  134. Allianz agreed the Fact Sheet should be renamed to reduce confusion, stating:

…the word 'settlement' for a lot of people implies that this is the final outcome. We found a lot of confusion with people when we gave them a $5,000 emergency payment, or just small amounts of payment. For example, when we settle their contents before the building and we give them something called a 'settlement sheet', they are thinking, 'Is this it?'—when, in fact, we may give people multiple cash settlement fact sheets over the course of their claim as we pay various losses in cash.[100]

4.135To streamline processes for emergency payments to people impacted by CAT 221, ASIC issued legislative relief for insurers to make emergency payments of up to $5,000 to policyholders in certain circumstances without the need to provide a Fact Sheet. Higher amounts still require the provision of the Fact Sheet, including partial, pre-settlement payments.[101]

4.136ASIC was supportive of ‘any changes that improve customer understanding’ and noted that it was currently reviewing the Fact Sheet relief instrument ahead of its expiry in 2024—and that the review may provide insights on how consumers are understanding the Fact Sheet.[102]

4.137Stakeholders also told the Committee that not enough policyholders fully understood the risks associated with taking a cash settlement and managing the rebuild process themselves. Stakeholders raised concerns about policyholders accepting cash settlements and making significant financial decisions that would have long term effects when they were still ‘in shock’ from the floods. Legal aid and financial counselling groups also noted that most people don’t seek legal or financial advice before making decisions relating to insurance claims. As Financial Counselling Australia noted:

If someone has been rescued from their roof and are then being offered a cash settlement within a month of their life being in danger, it's really clear to us that they're not in the right frame of mind to be making such a large financial decision when they're still reeling from that near-death experience.[103]

4.138Legal Aid Queensland believed policyholders offered a cash settlement should seek professional advice:

In my utopian world, if I had enough resources, I'd want them to talk to people like me before they made a decision because, in some cases, cash settlements are perfectly appropriate for them, once we've talked through all the issues, and, in some cases, they're perfectly inappropriate. But sometimes it's only by having a discussion with somebody who's not from the insurer that you get those ideas out and you get those specific circumstances of that individual out, and that allows them to make a good decision about what's in their interests.[104]

4.139Financial and legal aid groups considered cash settlements ‘very burdensome’ for some individuals, and noted that some people reported feeling pressured into accepting a cash settlement because they perceived it as an easier option than trying to navigate the claims process. Others may not have been provided with non-cash settlement options because they were only partially covered for the damage.[105]

4.140Financial and legal advice groups suggested that stronger language and other measures relating to seeking independent financial and legal advice when provided with cash settlement information should be implemented. For example, one option would be to amend the Code so that policyholders must be provided with comprehensive information about:

• The benefits of obtaining legal and financial counselling advice
• Specific organisations that could provide the policyholder with advice, including a referral to specific providers if the consumer wishes.[106]
  141. Similarly, Disaster Legal Help Victoria also suggested that insurers be required to provide the contact information for legal aid and financial counselling services and encourage consumers to seek it.[107]
  142. The General Insurance Code Governance Committee (CGC) agreed that setting out the benefits of obtaining independent financial and legal advice and how to obtain it is important information for consumers to make an informed decision. However, the CGC warned there should be ‘careful consideration’ around the level of prescription that goes into the Code regarding directing policyholders to get independent financial and legal advice’.[108]
  143. Similarly, the ICA cautioned that ‘not all customers will want or require advice’, and that additional costs and delays for policyholders would occur if there is a requirement that an insurer cannot pay a cash settled claim before legal and financial advice is sought.[109]
  144. The Committee also heard that there were instances of insurers using terms such as ‘without prejudice and ‘confidential’ on cash settlement offers, confusing some policyholders about whether they could seek legal or financial advice, or provide the documents to AFCA.[110]

Declining a cash settlement offer and the reopening of a claim

4.145Policyholders and consumer groups recounted many instances of cash settlement amounts being offered by insurers which did not provide policyholders with an amount equal to their entitlements under the policy. In some cases, only a portion of the covered damage was considered in the initial offer amounts. In other instances, cover for temporary accommodation or other entitlements were not included in initial offers. Policyholders can choose to not accept cash settlement offers if they are not satisfied with the amount being offered.

4.146Insurers may then make subsequent offers until an amount can be agreed. In several instances, the Committee heard evidence that policyholders negotiating a cash settlement amount without assistance could be offered amounts well below a fair amount several times, with many only obtaining a fair offer after seeking support from financial counsellors. It was not unheard of for offer amounts to increase by more than 50 per cent of the initial offer. Illustrating this, Financial Counsellors Australia provided data from one financial counselling service in regional Victoria that showed financial counsellors were able to negotiate a total increase of more than $3.3 million for cash payments offered to 40 clients—an average of $83,182 per client.[111] This raises questions as to whether some initial cash offers were genuine or testing whether a policyholder might accept a low-ball offer.

4.147Some policyholders accepted offers only to discover during the rebuild process that there was more damage than initially believed and repair costs would surpass the amount accepted from the insurer. For others, rapidly rising inflation, including the costs of labour, meant the amount was no longer adequate 6 to 12 months after settlement.[112] In the instances where a cash settlement has been accepted yet is found to be inadequate later in the rebuild stage, policyholders have limited opportunities to reopen their claim with their insurer.

4.148Policyholders may be unaware that if a claim is settled within one month after the event, they have 12 months to request a reconsideration of the cash settlement. ARC Justice and Disaster Legal Help Victoria believed insurers should provide clearer guidance to policyholders about their rights to reopen a claim within that timeframe.[113]

4.149Some consumer groups believed there should be more options available for policyholders to reopen a claim when further damage is discovered later in the rebuild phase, such as extending the period in which a policyholder can reopen their claim in relation to a cash settlement to offers that were accepted within 12 months of the event.[114]

4.150There was also a push for policyholders to have more rights to open a claim where an offer was accepted before the property was assessed. Anglicare Victoria described a ‘second wave’ of policyholders seeking assistance in Rochester and Echuca, where policyholders settled before experts assessed properties, with some properties continuing to have structural issues that the owner now needs to pay for to repair. Some of these issues may be the result of poor Scopes of Work done by insurers preferred builders, which policyholders were not able to challenge due to lack of availability of builders in the area.[115]

4.151The Committee sought data from insurers on the percentage of cash settlements to the 2022 flood-related claims where policyholders found the amount inadequate to cover the required work and the percentage of cases where the insurer agreed to increase the cash settlement.

4.152However, there was a lack of consistency in insurers’ responses to this question. Certain caveats were raised by insurers to the Committee in their responses, particularly that the number of cases where an additional increase in cash settlement was agreed does not solely reflect inadequacy of initial payment and that unforeseen damages were common reasons to revise the cash settlement offer.[116]

4.153The lack of comprehensive data relating to cash settlements results in an inability to fully analyse the extent of the issues. Emergency Recovery Victoria considered that collecting this data, and ensuring that policyholders have access to financial counselling, was a way of reducing the risks associated with cash settlements.[117]

4.154Many of the issues discussed above were emphasised in Financial Counselling Victoria’s report into the practice of cash settlements in home and contents insurance claims in response to the issues experienced in Victoria after the October 2022 floods. Key policy proposals made by Financial Counselling Victoria encompass various elements of the claims process including: standardisation to improve quality of coverage; greater flexibility in insurer rebuilds and repairs to accommodate mitigation and efficiency improvements; stronger protections around underinsurance, claims processes and cash settlements; better processes for vulnerable households in relation to cash settlements; and clearer practices for banks in administering cash settlements.[118]

Scope of works

4.155A Scope of Work (SoW) is a document that outlines the necessary repair or rebuilding work required for a property as covered by the terms of the policy.[119] The Code sets out that if a scope of works is needed for a home building claim, insurers ‘will provide you with information to help you understand how it works, its purpose and the process involved’.[120] SoWs are generally prepared by assessors, builders or engineers.

4.156The Committee received concerning evidence from policyholders of SoWs that did not include complete documentation of the repairs needed. This included the repair work for entire rooms being missed, as well as items such as finishings, including doorknobs.[121]

4.157Some policyholders were only provided with high level costings for their SoWs. Financial Rights Legal Centre told the Committee that some insurers redacted itemised pricing from their SoWs. Policyholders were told that the standard practice was that ‘they can only get an un-redacted copy if they sign off on the SoW’.[122] This lack of transparency made it difficult for policyholders to make judgements about the reasonableness of the quotes and make an informed decision about whether to accept the cash settlement offer.

4.158The Committee received suggestions on how to address some of the issues with SoWs. The Financial Rights Legal Centre advocated for the provision of SoWs with unredacted itemised quotes and a change to the Code to reflect this commitment by insurers.[123] It also recommended insurers pursue greater standardisation of the SoWs received for cash settlement purposes.[124]

4.159The Australian Consumers Insurance Lobby recommended that the Code should require insurers to ensure that all SoWs are complete, correct, detailed and allowed for reasonable variations.[125]

4.160Suncorp believed insurers should make improvements around the SoWs to ensure policyholders are informed, noting the consistency with which the issue had been raised throughout the inquiry.[126] The ICA advised the Committee that it was currently working with members on where standardisation may assist consumer understanding of claims processes and would ‘continue to review these options…for efficacy and practicality’.[127]

Other issues

4.161The scale of the major floods coupled with preexisting housing shortages made it difficult for insurers to source temporary accommodation.[128] Delays in claims resolution and reconstruction also meant policyholders required temporary accommodation for unusually long periods of time.[129] Ms Libby Buckingham, Director of Thriving Communities told the Committee about the impact this had on policyholders:

…the impact of temporary housing and unsafe housing is devastating to the people in these communities… on people's mental health, physical health, education and ability to participate in society… people are putting their lives on hold because they have very insecure housing while they wait for their claims to be heard and their permanent housing to be restored.[130]

4.162Some insurers provided cash payments for policyholders who wished to stay with family or friends where they could not occupy their home or source long term temporary accommodation nearby, allowing them to stay near community and access work, schools, and social support.[131] However, some insurers were more flexible than others in working with policyholders to extend temporary accommodation cover and find solutions that met their needs. Stakeholders noted occasions where insurers refused to provide temporary accommodation beyond the policy’s stipulated time period, despite claims processing and reconstruction delays being no cause of the policyholder.[132]

4.163The Committee also heard that insurers were unable to source temporary accommodation options for policyholders with specific family, mobility or other access needs.[133] This issue was previously discussed in Chapter 2.[134]Financial Counselling Australia wrote to the Committee about an older policyholder with mobility issues:

the insured was able to secure accommodation in a very small motel room close to his home. The motel room does not have adequate facilities to cater to the insured’s mobility issues, has no cooking facilities, and no laundry facilities.[135]

4.164Another policyholder shared with the Committee:

My children were forced to live in share houses, and my youngest son was in year 12. We applied for 16 rentals, and, having three teenagers and two dogs, I couldn't get a rental property. They refused to find us any alternative accommodation…I ended up buying a motorhome; I parked that in my driveway and lived there for 10 months with no facilities.[136]

Committee comment

4.165As a cash settlement transfers the risk of rebuilding from the insurer to the policyholder—who may not be able to project manage a complex task such as a rebuild after a traumatic event—the Committee is of the view that there a range of improvements that can be made to the guidance and process of cash settlements.

4.166The Committee also notes that cash settlements often fail to cover the actual expenses required for repairs due to increases in prices or lack of available trades, as well as insurers being able to obtain lower quotes than a policyholder. Cash settlement offers made by insurers should account for these circumstances.

4.167In addition, the establishment of cooling off periods and encouragement of financial and legal advice when policyholders are offered and considering a cash settlement are a sensible support for those in these circumstances.

4.168Further, the experiences of some policyholders with SoWs are concerning to the Committee and highlights the need for greater clarity and more consistency in how SoWs are written and communicated to policyholders. Issues relating to expert reports have been consistently raised throughout the inquiry and the Committee considers that work needs to be done in order to ensure that insurers take seriously the work undertaken by their assessors and other third parties.

4.169Temporary accommodation was raised as an issue in many of the communities that the Committee visited. At the moment, policies vary widely in terms of the amount of time that policyholders are guaranteed temporary accommodation, ranging from 6 months to multiple years. This places considerable risk on some policyholders in that construction often doesn’t begin until well into the guaranteed period (or even after it has finished). This exposes individuals and families to the risk that they might have to organise and fund temporary accommodation for themselves. While having a shorter period of guaranteed temporary accommodation might result in a very small reduction in premiums, it can create a significant risk of disruption.

4.170In many communities that the Committee visited, hundreds of people are living in highly precarious situations two years or more after the original event. In general, insurers are better placed to assume and manage the risks associated with delays (whether caused by external reports, dispute resolution, building delays or any other myriad causes). The assumption of the risk associated with the length of temporary accommodation may require insurers to slightly increase some premiums, but this would appear to be a sensible pooling of a risk that currently falls heavily and randomly on some households. Any such guarantee could have suitable caveats – for example in relation to where unreasonable consumer behaviour is the cause.

4.171The Committee recommends the Insurance Council of Australia in consultation with the Australian Securities and Investments Commission provide guidance to insurers about providing greater detail and clarity to policyholders on their rights and risks when an offer is made for a final cash settlement, including the risks policyholders should be aware of for the project management of repairs.

This would align with elements of recommendation 71 of the Independent Review of the General Insurance Code of Practice’s Initial Report, and the Committee recommends that this recommendation be implemented in full.

4.172The Committee recommends that the General Insurance Code of Practice provide that final cash settlements:

• Be provided in a template form that is standardised across all insurers. The template should include a clear itemisation of all key elements of the total sum. The template be designed with input from peak consumer organisations and the Australian Securities and Investments Commission.
• Should include actionable, comprehensive, and transparent quotes.
• Should clearly identify compensation for unforeseen risks and project management risk (as identified in Recommendation 9).

4.173The Committee recommends that the General Insurance Code of Practice be amended to include a minimum 30 day ‘cooling off period’ with respect to cash settlements.

4.174The Committee recommends that the General Insurance Code of Practice be amended to require insurers, when offering a final cash settlement, to:

• Advise the consumer to obtain legal advice in relation to a final cash settlement;
• Advise the consumer of their rights to reopen a final cash settlement under the General Insurance Code of Practice and any rights they may have in respect of common law;
• Refer the consumer to community legal advisers and financial counsellors in the local area.

4.175The Committee recommends that the General Insurance Code of Practice be amended to require insurers when offering final cash settlements to include a reasonable uplift/contingency sum to reasonably compensate policyholders for the risks they take on in project managing the repairs to their property.

4.176The Committee recommends the General Insurance Code of Practice be amended to allow policyholders to have a 12-month period to seek a review of a final cash settlement where there is a change in the facts upon which the original determination was made.

4.177The Committee recommends that the General Insurance Code of Practice prohibit the use of the terms “without prejudice” or “confidential” (or other misleading terms) on final cash settlement offers. This could be supplemented by regulatory guidance by the Australian Securities and Investments Commission.

4.178The Committee recommends that a new service be offered to support vulnerable cash settlement recipients to project manage rebuilds and major repairs. This could be similar to the Service Navigator role in Queensland’s Resilient Homes Fund.

4.179The Committee recommends that the Insurance Council of Australia in consultation with the Australian Securities and Investments Commission:

• develop standardised industry requirements for obtaining Scopes of Work to ensure common items are included and costings itemised (for example, in a template form),
• provide itemised costings in Scopes of Work to policyholders as part of the cash settlement offer process, and
• develop standardised mechanisms for insurers to implement quality control over the Scopes of Work they receive.

4.180The Committee recommends that there should be insurer and regulator oversight of Scopes of Work through the following mechanisms:

• Stronger Code provisions in relation to quality of Scopes of Work (as per Recommendation 74 of the Independent Review of the General Insurance Code of Practice).
• Random vetting of Scopes of Work quality by the Australian Securities and Investments Commission.

4.181The Committee recommends that insurers amend their home insurance policies to provide fully paid temporary accommodation until the insurer has closed the claim, unless the extension of the time required can be demonstrated to be a result of behaviour on the part of the policyholder that is unreasonably causing delay;

That final cash settlements include a provision for temporary accommodation that takes account of the Scope of Works; progress on the project to date; and a reasonable uplift; and

That the cost of covering temporary accommodation should be a separate entitlement and not be funded out of the sum insured amount.

4.182The Committee recommends the Insurance Council of Australia amend the General Insurance Code of Practice to include an appropriate mechanism for ensuring policyholders that are being provided with temporary accommodation as part of their claim have at least 3 months’ notice of any proposed substantive changes to the policyholders’ living situation or the insurers’ payments for the accommodation.

Insurers processes to fulfill a claim

Oversight of third-party contractors

4.183Australian insurers, according to the Deloitte report, are more likely to manage the rebuild process than other countries. This approach reduces the burden on policyholders as they are not required to manage the rebuild themselves in what can be a challenging economic environment.[137]

4.184The scale of the major floods required the rebuilding or repairing of thousands of properties, involving a multitude of third-party contractors such as builders and other tradespeople. This significant increase in activity required insurers to onboard additional contractors to their panels, as well as subcontracting, to meet the demand of the recovery effort. However, this increase in activity put pressure on insurers’ ability to monitor the actions of their third-party contractors throughout the project management process.

4.185The Review noted that insurers’ strategic decision making during the major floods was impacted by a lack of data and information, particularly from third party suppliers—and that in some instances ‘tactical solutions’ were put in place to deal with gaps in information during the event.[138]

4.186If the insurer has selected and directly authorised a repairer, the Code states that the insurer will accept responsibility for the quality of repairs. Any complaints regarding the repairers’ conduct, timeliness, quality or materials used are to be handled through the internal dispute resolution process.[139] While this is the standard expected by policyholders, the Committee heard that in many instances, insurers failed to take responsibility for the poor conduct or workmanship of third parties engaged by the insurer.[140]

4.187The Committee received evidence of concerning practices by third party providers, such as builders, and evidence on the impact it had on policyholders throughout the rebuilding or repairing process.

4.188Issues raised included a lack of communication from contractors and insurers about the timing of the works, work being undertaken without permission or consent, unnecessary remediation work and inadequately trained or overwhelmed project managers.[141]

4.189Resilient Lismore told the Committee it was a common experience in the Lismore community for work to be undertaken without the policyholder’s consent or awareness. This included the removal of materials that ‘didn’t need to be removed or could have been approached in a different way’. Resilient Lismore told the Committee the rebuild experience had ‘more of an impact…than the actual flood itself’, stating:

When I asked people about who was coming into the house, who were these people, the common answer was they didn't know who the demolition companies were. They had no idea who was coming in through the door even if they were there. There was no proof or evidence of ID or understanding or any letter delivered or dropped off or any name or any contact number given. People had no idea who these teams of people were coming through the door. They were not even understanding why they were taking things at times. The point was there was no identification. We're going back to those houses and I've asked them, 'Can you remember or can you find any correspondence,' and they can't find any correspondence either.[142]

4.190Other examples included:

• A policyholder that experienced a subcontractor selecting appliances or fixtures without their involvement and receiving contradictory information from different contractors.[143]
• A policyholder that experienced a full strip out of their home and disposal of salvageable items without confirming their claim had been approved, where the builder had asked the policyholder to sign a waiver to commence the strip out. The replacement of salvageable items cost of over $50,000.[144]
• Subcontractors that are believed to have forced entry into the property and removed original historical elements without the knowledge or consent of the policyholder.[145]
  191. The Committee requested information from several major insurers regarding their practices around requiring waiver documents to be signed for strip-outs or other actions undertaken. Most insurers indicated that they did not require policyholders to sign documents in relation to strip-out of properties.[146]
  192. However, it was also noted that this did not mean that third-party contractors were prohibited from obtaining the waivers themselves. For example, Hollard explained that policyholders ‘may be asked’ to sign authorisation for repair works where strip-out, removal and/or the disposal of non-salvageable items is involved. A service provider may request authorisation documents, and it was general practice for the service provider to supply the customer with correspondence regarding their engagement with the insurer through providing documents and other information.[147]
  193. A&G also clarified that if a claims consultant, assessor, builder or supplier determines that a make safe strip out is required, that the builders and suppliers ‘request that policyholders complete a make safe waiver’. Further, A&G noted that the purpose, effect and potential consequences of the waiver is required to be explained to the policyholder by the builder or supplier.[148]
  194. Insurers had difficulty monitoring third-party contractors. Hollard explained that during the major floods, an overwhelmed supply chain was managed using spreadsheets and Hollard was unable to monitor when builders had gone out to properties, the status of the reports, and the due date of reports.[149]
  195. The effectiveness of third-party suppliers themselves was out of scope for Deloitte’s review, however, the Deloitte report noted that improvements in oversight had been made by insurers post-CAT 221.[150] The Deloitte report observed that at the time to CAT221, half of the insurers analysed did not have formalised operating models for roles and responsibilities, workforce planning, quality assurance and oversight of third-parties.[151]
  196. Allianz noted it had ‘significantly invested’ in its oversight of third-party providers, including enhancing the management framework that governed how third-party providers are selected, onboarded and monitored. Allianz also noted that it has a dedicated team responsible for oversight of its external claims provider network and had made material investments to digitise oversight.[152]
  197. Similarly, QBE introduced measures and uplifted guidelines for actions such as builder strip-out instructions to provide clarity and enhance communications between builders or restorers and policyholders.[153]
  198. A&G submitted that to improve the customer experience relating to make-safe strip out works, it had undertaken a review of the process in 2023, with the revised process including: updated waivers (in plainer English), builder/supplier training, document management, consultant training and scripting, and customer FAQs.[154]
  199. Several consumer groups and policyholders indicated that better investment, project management and oversight was still needed.[155]
  200. The findings of ASIC’s review identified project management as an area for improvement:

Insurers must maintain adequate oversight of insurer-appointed third parties and manage the claims process for consumers. This extends to notifying consumers about the purpose, order and timing of assessors and trades attending their home.[156]

4.201Financial Counselling Australia told the Committee that insurers should implement ‘robust communication protocols’ and informed consent before any major structural changes. In its submission, Financial Counselling Australia further commented that improved communication in these areas can prevent misunderstandings and unnecessary losses.[157]

4.202The General Insurance Code Governance Committee also emphasised the importance of oversight of third parties and that insurers must ‘know precisely what information its third-party contractor tells a customer about a claim’.[158]

4.203Resilient Lismore contended to the Committee that third-party access into properties without the policyholders consent should be treated as breaking and entering and the taking of items as stealing, with penalties enforced:

I would suggest there should be penalties. We heard from Kate that break and enter was an aspect of those people getting access to her property. Kate's story is not a standout; it is a common experience. The property owners weren't home. Access was forced. Materials were taken without consent, without permission, without knowledge. Penalties should be enforced and there should be swift pathways for property owners to seek those penalties. We again heard the police say, 'We can't actually do anything about this.' We need to regulate in a way that makes those contractors understand that they have to do things in the appropriate way.[159]

4.204Some policyholders argued for that there should be a contract between builders and policyholders on the conduct of repair and remediation work, however, the ICA believed it was unlikely the issues raised would be resolved this way. The ICA told the Committee that insurers would generally be expected to have more influence and leverage in negotiations with contractors than policyholders.[160] Contract requirements for residential building work in relation to price, scope of works and warranties are also generally mandated by state or territory legislation,[161] which could make the drive for more consistency more difficult to achieve.

Committee comment

4.205While insurers outlined to the Committee improvements to their third-party oversight mechanisms in response to the 2022 major floods, the reported experiences of many impacted individuals who gave evidence to this Committee amount to damning industry failure.

4.206The Committee recognises that there was a necessary increase in building activity, and in some instances in onboarding of new staff and contractors to cope with major flood related claims. However, this increase in capacity requirements should not result in a decrease in service expectations, or excuse inappropriate behaviour.

4.207It is likely that future natural disaster insurance surges will create similar pressures and therefore it is essential that insurers have frameworks in place to ensure that the activities of third parties are conducted in accordance with insurers’ and policyholders’ expectations and in full compliance with all regulatory requirements.

4.208The Committee recommends that the Insurance Council of Australia in conjunction with the Australian Securities and Investments Commission develop guidelines on how insurers can apply tighter internal controls on the oversight of building contractors, including guidelines on community expectations for industry to improve their oversight practices.

4.209The Committee recommends the Australian Government consider appropriate regulatory or other mechanisms to reduce the instances of third-party builders and other contractors making changes to properties without the policyholder’s consent, including the practice of gaining entry, removing property (strip-outs) or conducting repairs without the policyholder’s knowledge or consent. Solutions should take into account the unique circumstances and challenges created by catastrophic flood events.

Footnotes

[1]Insurance Council of Australia (ICA), ‘Insurance recovery and claims process’, https://insurancecouncil.com.au/resource/insurance-recovery-process/, viewed 18 August 2024.

[2]Corporations Act 2001, s. 766A(1)(eb).

[3]Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final Report: Volume 1, February 2019, pp. 416, 455; Department of the Treasury, Insurance Claims Handling: Taking action on recommendation 4.8 of the Banking, Superannuation & Financial Services Royal Commission, Consultation Paper, https://treasury.gov.au/sites/default/files/2019-03/t364638-consultation-paper.pdf, 2019, p. 5.

[4]ICA, General Insurance Code of Practice, 5 October 2021, p. 4.

[5]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 85.

[6]Ms Alison Baumgart, Private capacity, Committee Hansard, Maribyrnong, 17 April 2024, p. 23.

[7]Mr Sean Haynes, Private capacity, Committee Hansard, Eugowra, 8 May 2024, p. 32.

[8]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 13.

[9]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 90.

[10]Australian Financial Complaints Authority (AFCA), Submission 1, p. 23.

[11]Mr Paul Holmes, Assistant Director, Disaster Relief, Legal Aid Queensland, Committee Hansard, 31 January 2024, p. 43.

[12]Insurance Contracts Regulations 2017, reg 34.

[13]Mr Paul Holmes, Assistant Director, Disaster Relief, Legal Aid Queensland, Committee Hansard, 31 January 2024, p. 43; Financial Rights Legal Centre, Submission 27.2, p. 4.

[14]Department of the Treasury, Standardising General Insurance Definitions, p. 10.

[15]Bureau of Meteorology, ‘Storm surge’, www.bom.gov.au/cyclone/tropical-cyclone-knowledge-centre/understanding/storm-surge/, viewed 3 September 2024.

[16]Department of the Treasury, Standardising General Insurance Definitions, p. 11.

[17]ICA, Submission 11, p. [7].

[18]Insurance Australia Group, Submission 16, p. 17.

[19]AFCA, Submission 1, p. 20.

[20]Mr Paul Holmes, Assistant Director, Disaster Relief, Legal Aid Queensland, Committee Hansard, 31 January 2024, p. 44.

[21]Mr Justin Untersteiner, Chief Operating Officer, AFCA, Committee Hansard, 21 February 2024, p. 31.

[22]ICA, Supplementary Submission 1.1, p. [1].

[23]Department of the Treasury, ‘Standard definitions and standard cover for insurance’, https://treasury.gov.au/consultation/c2024-501098.

[24]ASIC, Navigating the storm: ASIC’s review of home insurance claims, 16 August 2023, p. 21.

[25]AFCA, Submission 1, p. 23

[26]For example: Disaster Legal Help Victoria, Submission 7, p. 3; Legal Aid Queensland, Submission 8, p. 5; Ms Tracey Blythe, Disaster Recovery Coordinator, Financial Counselling Victoria, Committee Hansard, 1 February 2024, p. 3.

[27]Caxton Legal Centre, Submission 28, p. 5.

[28]Ms Jacqui Cavanagh, Senior Lawyer, Financial Rights and Housing, Caxton Legal Centre, Committee Hansard, Caboolture, 9 April 2024, p. 24.

[29]Legal Aid Queensland, Submission 8, p. 5; Ms Ma’ata Solofoni, Senior Solicitor, Disaster Recovery and Insurance, Legal Aid New South Wales, Committee Hansard, Eugowra, 8 May 2024, p. 4.

[30]ASIC, Navigating the storm: ASIC’s review of home insurance claims, 16 August 2023, p. 21.

[31]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 83.

[32]Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 46.

[33]Mr Steve Johnston, Group Chief Executive Officer and Managing Director, Suncorp Group, Committee Hansard, 5 February 2024, p. 20.

[34]For example: Byron Shire Council, Submission 54, p. 7; Ms Rebekah Doran, Senior Solicitor and Project Manager, Legal Aid New South Wales, Committee Hansard, Richmond, 9 May 2024, p. 33.

[35]For example: Allianz, ‘Your essential home maintenance guide’, www.allianz.com.au/home-insurance/articles/home-insurance-maintenance-guide.html, viewed 2 September 2024; QBE, ‘Why maintenance is key when it comes to home and contents insurance’, www.qbe.com/au/news/why-maintenance-is-key-when-it-comes-to-home-and-contents-insurance, viewed 2 September 2024; Suncorp, ‘A guide to preventative home maintenance’, www.suncorp.com.au/learn-about/maintaining-a-home/guide-to-preventative-home-maintenance.html, viewed 2 September 2024; RACQ, ‘Insurance explained: Why home maintenance is so important’, www.racq.com.au/articles/your-place/2022/9/insurance-explained-why-home-maintenance-is-so-important, viewed 2 September 2024.

[36]Ms Sharon Keith, Program Manager, Disaster Legal Help Victoria, Committee Hansard, 31 January 2024, p. 29; Caxton Legal Centre, Submission 28, pp. 2, 4, and 5.

[37]Ms Sharon Keith, Program Manager, Disaster Legal Help Victoria, Committee Hansard, 31 January 2024, p. 29.

[38]Mr Paul Holmes, Assistant Director, Disaster Relef, Legal Aid Queensland, Committee Hansard, 31 January 2024, p. 44.

[39]Financial Rights Legal Centre, Supplementary Submission 27.3, p. [121].

[40]Auto & General Holdings, Submission 18, p. 8.

[41]Mr Andrew Hall, Chief Executive Officer, Climate, Operations and Strategy, Insurance Council of Australia, Committee Hansard, 5 February 2024, p. 4.

[42]Ms Rebekah Doran, Senior Solicitor and Project Manager, Legal Aid New South Wales, Committee Hansard, Richmond, 9 May 2024, p. 33.

[43]Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 47.

[44]Mr Stephen Harris, Private capacity, Committee Hansard, Rochester, 18 April 2024, p. 31.

[45]ICA, Supplementary Submission 11.2, p. [6].

[46]ICA, Supplementary Submission 11.2, p. [7].

[47]AFCA, Supplementary Submission 1.2, p. 4.

[48]For example: Mr Paul Holmes, Assistant Director, Disaster Relief, Legal Aid Queensland, Committee Hansard, 31 January 2024, p. 43; Disaster Legal Help Victoria, Submission 7, p. 5; Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 8; AFCA, Supplementary Submission 1.1, p. 4.

[49]Financial Rights Legal Centre, Supplementary Submission 27.3, p. [10].

[50]Mr Robb Preston, Assistant Secretary, Banking, Insurance and Credit Branch, Department of the Treasury, Committee Hansard, 15 March 2024, pp. 17–18 .

[51]Mr Robb Preston, Assistant Secretary, Banking, Insurance and Credit Branch, Department of the Treasury, Committee Hansard, 15 March 2024, p. 17.

[52]For example: Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 26; Legal Aid New South Wales, Submission 34, p. 18; ARC Justice, Submission 9, p. 3.

[53]Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 26.

[54]General Insurance Code Governance Committee, Submission 5, p. 4.

[55]General Insurance Code Governance Committee, Submission 5, p. 4.

[56]Mrs Prue Monument, General Manager, Code Compliance and Monitoring; and Chief Executive Officer, Banking Code Compliance Committee (on behalf of General Insurance Code Governance Committee), Australian Financial Complaints Authority, Committee Hansard, 23 February 2024, p. 10.

[57]Mr Alan Kirkland, Commissioner, Australian Securities and Investments Commission, Committee Hansard, 2 February 2024, p. 11.

[58]Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 27.

[59]Mrs Julia Davis, Senior Policy and Communications Officer, Financial Rights Legal Centre, Committee Hansard, 31 January 2024, p. 5.

[60]Mrs Melinda McInturff, Community Resilience Coordinator, Community Plus Queensland, Committee Hansard, Logan, 10 April 2024, p. 9.

[61]Mr Robb Preston, Assistant Secretary, Banking, Insurance and Credit Branch, Department of the Treasury, Committee Hansard, 15 March 2024, p. 18.

[62]AFCA, Supplementary Submission 1.2, p. 5.

[63]Mr Paul Holmes, Assistant Director, Disaster Relief, Legal Aid Queensland, Committee Hansard, 31 January 2024, p. 42.

[64]Mr Paul Holmes, Assistant Director, Disaster Relief, Legal Aid Queensland, Committee Hansard, 31 January 2024, p. 41.

[65]Mrs Prue Monument, General Manager, Code Compliance and Monitoring; and Chief Executive Officer, Banking Code Compliance Committee (on behalf of General Insurance Code Governance Committee), Australian Financial Complaints Authority, Committee Hansard, 23 February 2024, p. 10.

[66]General Insurance Code Governance Committee, Oversight of External Experts, August 2024.

[67]Insurance Contracts Act 1984 s. 46(2).

[68]Berrill & Watson, ‘Insurers side-stepping consumer protections in general insurance claims’, www.berrillwatson.com.au/supertalk-blog/2024/september/s46-insurance-contracts-act/, 12 September 2024.

[69]AFCA, ‘Insurance complaints about flood claim decisions’, www.afca.org.au/about-afca/publications/insurance-complaints-about-flood-claim-decisions, viewed 21 August 2024.

[70]Allianz Australia, Submission 13, p. 11.

[71]ICA, Submission 11, p. [7].

[72]Allianz Australia, Submission 13, p. 11.

[73]Appendix C, Figure C.41.

[74]Allianz Australia, Submission 13, p. 11.

[75]AFCA, ‘Insurance complaints about flood claim decisions’, www.afca.org.au/about-afca/publications/insurance-complaints-about-flood-claim-decisions, viewed 21 August 2024.

[76]Mrs Rosemary Townsend, Private capacity, Committee Hansard, Eugowra, 8 May 2024, p. 35.

[77]Mrs Rosemary Townsend, Private capacity, Committee Hansard, Eugowra, 8 May 2024, p. 35.

[78]Mr David Eccleston, Private capacity, Committee Hansard, Molong, 7 May 2024, p. 39.

[79]Ms Rebekah Doran, Senior Solicitor and Project Manager, Legal Aid New South Wales, Committee Hansard, Richmond, 9 May 2024, pp. 32–33.

[80]Mr Steve Krieg, Mayor, Lismore City Council, Committee Hansard, Lismore, 11 April 2024, p. 5.

[81]Mr Justin Untersteiner, Chief Operating officer, AFCA, Committee Hansard, 21 February 2024, p. 29.

[82]AFCA, ‘Insurance complaints about flood claim decisions’, www.afca.org.au/about-afca/publications/insurance-complaints-about-flood-claim-decisions, viewed 21 August 2024.

[83]AFCA, Submission 1, p. 33.

[84]Allianz Australia, Submission 31, p. 41; Hollard Holdings Australia, Submission 19, p. 37.

[85]For example: Mr David Keen, Submission 33, p. [5]; Mr Paul Holmes, Assistant Director, Disaster Relief, Legal Aid Queensland, Committee Hansard, 31 January 2024, p. 43.

[86]Ms Bernadette Wright, Counsellor and Mental Health Support, Rochester Community House, Committee Hansard, Rochester, 18 April 2024, p. 15.

[87]Suncorp Group, Submission 12, p. 37.

[88]Mr Chris Thomas, Member, Sydney Division Water Engineering, Engineers Australia, Committee Hansard, 30 July 2024, p. 19.

[89]Suncorp Group, Submission 12, p. 37.

[90]Mr Steve Johnston, Group Chief Executive Officer and Managing Director, Suncorp Group, Committee Hansard, 5 February 2024, p. 23.

[91]Auto & General Holdings, Submission 18, p. 42.

[92]ARC Justice, Submission 9, p. 7; Legal Aid Queensland, Submission 8, p. 10; Disaster Legal Help Victoria, Submission 7, p. 5.

[93]ICA, ‘Repair/Replace/Rebuild vs Cash Settlement’, https://insurancecouncil.com.au/resource/repair-replace-rebuild-vs-cash-settlement/, viewed 5 August 2024.

[94]ICA, General Insurance Code of Practice, 5 October 2021, p. 28.

[95]Corporations Act 2001, ss. 948(b)-948(f) and ss. 952(a)-9539(c).

[96]ASIC, ‘Claims handling and settling: how to comply with your AFS license obligations’, https://asic.gov.au/for-finance-professionals/afs-licensees/applying-for-and-managing-an-afs-licence/licensing-certain-service-providers/claims-handling-and-settling-how-to-comply-with-your-afs-licence-obligations, viewed 5 August 2024, p. 25.

[97]Ms Evgenia Bourova, Professor Ian Ramsay and Associate Professor Paul Ali, Submission 57, p. [4]; Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 35; Legal Aid Queensland, Submission 8, p. 7; Disaster Legal Help Victoria, Submission 7, p. 3.

[98]Disaster Legal Help Victoria, Submission 7, p. 3.

[99]Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 35.

[100]Mr Nicholas Scofield, Chief Corporate Affairs Officer, Allianz Australia Insurance Limited, Committee Hansard, 9 February 2024, p. 26.

[101]ASIC, ‘ASIC streamlines process for insurers to provide consumers cash in emergency situations’, Media Release, 2 March 2022.

[102]ASIC, Supplementary Submission 35.1, p. 10.

[103]Ms Vicki Staff, National Coordinator for Disaster Recovery, Financial Counselling Australia, Committee Hansard, 1 February 2024, p. 9.

[104]Mr Paul Holmes, Assistant Director, Disaster Relief, Legal Aid Queensland, Committee Hansard, 31 January 2024, p. 46.

[105]Dr Prue Bagley, Community Engagement Officer, ARC Justice, Committee Hansard, 1 February 2024, p. 36; Legal Aid Queensland, Submission 8, p. 7; Emergency Recovery Victoria, Submission 31, p. 7.

[106]Financial Rights Legal Council, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 9; Legal Aid Queensland, Submission 8, p. 7.

[107]Disaster Legal Help Victoria, Submission 7, p. 6.

[108]Ms Prue Monument, General Manager, Code Compliance and Monitoring; and Chief Executive Officer, Banking Code Compliance Committee (on behalf of General Insurance Code Governance Committee), Australian Financial Complaints Authority, Committee Hansard, 22 February 2024, p. 7.

[109]ICA, Supplementary Submission 1.2, p. [4].

[110]Ms Kristy Evans, Director and Solicitor, Cheney Suthers Lawyers, Committee Hansard, Molong, 7 May 2024, p. 12.

[111]Financial Counselling Australia, Supplementary Submission 6.1, p. 4.

[112]Financial Counselling Australia, Submission 6, p. 8.

[113]Ms Kate Clohesy, Director, Strategy and Impact, ARC Justice, Committee Hansard, 1 February, p. 40; Disaster Legal Help Victoria, Submission 7, p. 6.

[114]Legal Aid Queensland, Submission 8, pp. 7–8; Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 9; Caxton Legal Centre, Submission 28, p. 7; Mr Paul Holmes, Assistant Director, Disaster Relief, Legal Aid Queensland, Committee Hansard, 31 January 2024, p. 46.

[115]Ms Lylia Martion, Financial Counsellor, Anglicare Victoria, Committee Hansard, 1 February 2024, p. 5.

[116]Suncorp Group, Supplementary Submission 12.1, p. [9]; Allianz Australia, Supplementary Submission 13.2, pp. 4–5; Youi, SupplementarySubmission14.2, p. 3; RACQ Group, Supplementary Submission 15.1, pp. 4–5; Insurance Australia Group, Supplementary Submission 16.1, p. 2; QBE Insurance Group, Supplementary Submission 17.3, p. 8; Auto & General Holdings, Supplementary Submission 18.2, pp. 4–5; Hollard Holdings Australia, Supplementary Submission 19.1; p. [3].

[117]Emergency Recovery Victoria, Submission 31, p. 7.

[118]Financial Counselling Victoria, Unsettled: Climate Risk and Cash Settlements in Home Insurance, August 2024, p. 6.

[119]ICA, ‘Scope of Works’, https://insurancecouncil.com.au/wp-content/uploads/2023/11/4.-Fact-Sheet_Scope-of-Work3.pdf, viewed 10 September 2024.

[120]ICA, General Insurance Code of Practice, 5 October 2021, p. 27.

[121]For example: Ms Amanda Logie, Manager, Rochester Community House, Committee Hansard, Rochester, 18 April 2024, p. 10; Dr Alan Cornick, Private capacity, Committee Hansard, Logan, 10 April 2024, p. 16; Ms Alison Phillips, Private capacity, Committee Hansard, Heathcote, 19 April 2024, p. 25; Mr Phillip Davis and Mrs Ann-Maree Davis, Private capacity, Committee Hansard, Molong, 7 May 2024, p. 32.

[122]Financial Rights Legal Centre, SupplementarySubmission 27.3, p. [102].

[123]Financial Rights Legal Centre, SupplementarySubmission 27.3, p. [104].

[124]Financial Rights Legal Centre, SupplementarySubmission 27.3, p. [104].

[125]Australian Consumers Insurance Lobby, Supplementary Submission 2.1, p. 13.

[126]Ms Lisa Harrison, Chief Executive Officer, Consumer Insurance, Suncorp Group, Committee Hansard, 5 February 2024, p. 18.

[127]ICA, Supplementary Submission 11.2, p. [6].

[128]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 25.

[129]Campaspe News, ‘Frustrated residents seek help from state MP’, 20 February 2024; Mr Steve Krieg, Mayor, Lismore City Council, Committee Hansard, Lismore, 11 April 2024, p. 8.

[130]Ms Libby Buckingham, Director, Thriving Communities, Victorian Council of Social Service, Committee Hansard, 31 January 2024, p. 18.

[131]Suncorp Group, Submission 12, p. 9; Allianz Australia, Submission 13, p. 26.

[132]Financial Counselling Australia, Supplementary Submission 6.1, p. 7.

[133]Ms Ma’ata Solofoni, Senior Solicitor, Disaster Recovery and Insurance, Legal Aid New South Wales, Committee Hansard, 31 January 2024; Mrs Erin Easton, Second in Command, Family Support Worker and Community Connect Recovery, Port Douglas Community Services Network, Committee Hansard, Cairns, 24 July 2024, p. 5; Mrs Claire Heath, Private capacity, Committee Hansard, Cairns, 24 July 2024, p. 41; Ms Vicki Staff, National Coordinator for Disaster Recovery, Financial Counselling Australia, Committee Hansard, 1 February 2024, p. 1.

[134]Financial Counselling Australia, Supplementary Submission 6.1, p. 8.

[135]Financial Counselling Australia, Supplementary Submission 6.1, p. 7.

[136]Ms Svea Pitman, Private capacity, Committee Hansard, Lismore, 11 April 2024, p. 51.

[137]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 33.

[138]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 32.

[139]ICA, General Insurance Code of Practice, 5 October 2021, p. 29.

[140]Legal Aid New South Wales, Submission 34, p. 31.

[141]LITMAS, Submission 39, p. 8.

[142]Mr Johnathan Smith, Field Coordinator, Resilient Lismore, Committee Hansard, Lismore, 11 April 2024, pp. 30–31, 34.

[143]Cheney Suthers Lawyers, Submission 61, pp. 2–3.

[144]Financial Counselling Australia, Submission 6, p. 37.

[145]Ms Kate Olivieri, Private capacity, Committee Hansard, Lismore, 11 April 2024, p. 24.

[146]For example: Suncorp Group, Submission 12, p. 27; RACQ Group, Submission 15, p. 9; Insurance Australia Group, Submission 16, p. 18; Allianz Australia, Submission 13, p. 30; Youi, Submission 14, p. 9.

[147]Hollard Holdings Australia, Submission 19, p. 16.

[148]Auto & General Holdings, Submission 18, p. 14.

[149]Mrs Paige Vincent, Chief Operating Officer, Hollard Insurance Company, Committee Hansard, 21 February 2024, p. 17.

[150]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 35.

[151]Deloitte, The new benchmark for catastrophe preparedness in Australia, October 2023, p. 90.

[152]Allianz Australia, Submission 13, p. 18.

[153]QBE Insurance Group, Submission 17, p. 6.

[154]Auto & General Holdings, Submission 18, p. 14.

[155]For example: Mrs Julia Davis, Senior Policy and Communications Officer, Financial Rights Legal Centre, Committee Hansard, 31 January 2024, p. 1; Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 33; Legal Aid Queensland, Submission 8, pp. 8–9.

[156]ASIC, Submission 35, p. 11.

[157]Financial Counselling Australia, Submission 6, p. 9

[158]General Insurance Code Governance Committee, Submission 5, p. 7.

[159]Ms Elly Bird, Executive Director, Resilient Lismore, Committee Hansard, Lismore, 11 April 2024, p. 35.

[160]ICA, Supplementary Submission 11.2, p. [2].

[161]QBE Insurance Group, Submission 17, p. 14.