Need to know
- A Parliamentary inquiry has delivered a damning 457-page report on insurers' responses to the 2022 floods
- Many policyholders had claims knocked back on flimsy grounds and faced long delays in claims processing
- The report's 85 recommendations provide a roadmap to overhaul the industry and the way it treats customers in their time of need
From February through December in 2022, major flooding occurred across various parts of Victoria, New South Wales, Queensland and Tasmania, affecting hundreds of postcodes and erasing any doubt that weather events are getting worse.
A long Parliamentary inquiry has subsequently delivered a damning 457-page report that shows how poorly the insurance industry responded to the many policyholders affected.
Homeowners filed around 300,000 insurance claims, but far too many were not well served by their insurance companies.
Some are still waiting to return to their homes two years later, due to delays in handling claims or lowball offers that were refused, prolonging the process even further.
There is granular and heartbreaking detail to spare, but the overall takeaway from the recently released report – optimistically titled Flood failure to future fairness – is that the industry let so many policyholders down that an overhaul is needed.
The report makes 85 recommendations, many of which should be made mandatory – such as making it clear what you are and aren't covered for before the storm hits.
Failed to meet obligations
The chair of the committee that conducted the inquiry, Dr Daniel Mulino, didn't hold back in his criticisms of how home insurance providers treated their customers in their time of need, citing a "collective failure by insurers to meet their obligations to policyholders".
"Too many cases were badly mishandled. Inconsistent decision-making meant neighbours received different outcomes after the same event. Long delays caused emotional, mental health and financial strain. More than two years on, many people still can't go home. Initial offers were often too low, which was especially problematic for cash settlements," Mulino says.
Too many cases were badly mishandled. Inconsistent decision-making meant neighbours received different outcomes after the same event
Committee chair Dr Daniel Mulino
Some insurers refused to pay claims because of what they determined was pre-existing damage or a lack of maintenance that allowed the weather event to cause more destruction than it should have, though many homeowners would not have known about the alleged maintenance issue.
Temporary accommodation arrangements organised by insurers per the terms of their policies often ended before repairs and rebuilds were complete, forcing families to move from motel to motel on short notice or camp in sheds and backyards.
"We believe insurers should, by default, assume the risk of how long it takes to complete works, and to bear the cost of temporary accommodation," Mulino says.
Insurers' 'lowballing' policyholders
In January this year, we lodged a joint submission to the 2022 floods inquiry with the Financial Rights Legal Centre (FRLC), the Consumer Action Law Centre (Consumer Action) and Westjustice, highlighting insurance claims issues including long delays, poor communication, and assessor processes and reports that made little sense to policyholders. All of this comes out in the report in voluminous detail.
Alexandra Kelly, director of casework at the FRLC, says the report's recommendations "provide a clear roadmap to insurers to clean up their act in the wake of the floods and improve their claims handling standards".
Our frontline caseworkers have seen an overall deterioration in how our clients experience insurance
Westjustice CEO Melissa Hardham
Westjustice CEO Melissa Hardham says the failures of the industry highlighted in the report are part of a larger trend, especially where vulnerable customers are involved.
"Our frontline caseworkers have seen an overall deterioration in how our clients experience insurance – from time taken to handle claims, to fair and appropriate dealing with people experiencing language barriers or complex issues."
Financial Counselling Australia, which reports that nearly all of the 14 recommendations it made to the inquiry were included in whole or in part in the committee's final recommendations, assisted many policyholders in the aftermath of the floods and helped them push back against some of the industry's tactics.
"We found that many insurers were often 'lowballing' and financial counsellors were able to negotiate much larger amounts," says FCA's coordinator of disaster recovery Vicki Staff.
"In fact, in one area alone, they were able to obtain a total increase of more than $3.3 million for cash settlements offered to 40 clients. This is an average of an additional $83,000 per client."
Recommendations reveal what went wrong
One of the report's recommendations – standardising key terms across all insurance contracts, such as "rainfall runoff", "storm surge", "wear and tear" and "lack of maintenance" – gives a sense of the ambiguous policy wordings that gave insurers leeway to deny claims.
Other recommendations include prohibiting insurers from denying claims based solely on inconclusive expert reports; requiring insurers to accept or deny a claim within 12 months; and requiring insurers to provide guidance to policyholders on any maintenance obligations up front.
The industry needs to heed all these calls
CHOICE head of policy Tom Abourizk
CHOICE head of policy Tom Abourizk says the insurance industry "is not working for consumers, particularly those bearing the risk of extreme weather events".
The parliamentary report "rightfully calls for big improvements to the services insurers provide, and the industry needs to heed all these calls", Abourizk says.
Stock images: Getty, unless otherwise stated.
