Home insurers may be leaving Australians exposed to higher repair costs by using cash settlements in a significant percentage of claims, an ASIC review has found.
ASIC Commissioner Alan Kirkland said insurers who offer cash settlements need to be vigilant that their assessments reflect the true cost of repairs, and that consumers have enough information to make informed decisions.
‘For many homeowners, accepting a cash settlement, instead of the insurer managing repairs, can mean taking on the responsibility of finding tradespeople, overseeing repairs, dealing with unexpected costs and navigating issues that would otherwise be handled by the insurer,’ Mr Kirkland said.
ASIC’s review of insurer practices revealed that full cash settlements or partial cash settlements, where insurers repair or rebuild some of the damage, were used in at least 63% of ASIC-reviewed claims. For Cyclone Jasper, two of five insurers used them in more than 80% of claims.
‘While cash settlements can offer flexibility and faster resolution, consumers must be given enough information to understand what the settlement will cover, so they can make an informed choice.’ Mr Kirkland said.
More than half (52%) of the cash settlement offers ASIC reviewed were based on a single quote, with insurers often relying on quotes from preferred suppliers that may not reflect the price consumers face when arranging repairs themselves.
‘The easy option for insurers can be the expensive one for homeowners. If the amount falls short, consumers can be left shouldering the cost of repairs and paying the difference out of their own pocket,’ Mr Kirkland said.
‘If homeowners are taking on more work, more risk and potentially more costs, home insurers need to take this into account when offering to settle with cash.’
ASIC also identified concerning gaps in how insurers supported vulnerable consumers during the claims process.
‘Four of five insurers we reviewed failed to consistently apply policies in place for dealing with vulnerable customers and even when these customers were identified, some insurers did not record information or share it with third parties involved in the claim process,’ Mr Kirkland said.
ASIC also found that a settlement amount can increase significantly after a consumer lodges a complaint, raising concerns about the fairness of some initial offers made by insurers.
Mr Kirkland said, ‘Consumers shouldn't have to fight for a fair settlement. Australians have a right to expect a fair offer from the start.
‘Insurers need to ensure cash settlement offers are realistic, transparent and properly explained, and consumers need enough information to know if a cash payout will genuinely cover the cost of repairs, and if it is the right outcome for them.’
ASIC is calling on insurers to improve how they communicate cash settlement offers, provide clearer information about consumer rights and options, and ensure settlement amounts reflect realistic repair costs.
ASIC has detailed its findings for industry today in its review: Beyond the payout: ASIC warns home insurers to reduce cash settlement risks, which details better and poorer practices.
Insurers involved in the review included: Insurance Australia Group, including Insurance Manufacturers of Australia and Insurance Australia, AAI, QBE Insurance (Australia), Allianz Australia and Sure Insurance.