Cash settlements on home insurance claims leaving vulnerable Australians short-changed, Asic says

Home insurers in Australia are increasingly settling claims with cash payments rather than managing repairs or rebuilding, according to a report released today by the Australian Securities and Investments Commission (ASIC). The regulator’s findings suggest these cash settlements—often based on discounted quotes from insurers’ preferred builders—are leaving homeowners vulnerable to unexpected repair costs and financial strain, particularly in cyclone-affected regions like far north Queensland.

In its review of claims from Cyclone Jasper, which struck in December 2023, ASIC examined practices among Australia’s largest insurers, including Insurance Australia Group (IAG), AAI, QBE Insurance, Allianz Australia, and Sure Insurance. The regulator found that cash settlements were used in over 63% of final claims, with IAG and Allianz using full or partial cash settlements in more than 80% of cases. Most of these cash offers were based on a single quote, often from insurers’ preferred suppliers, raising concerns that payouts may not cover actual repair costs.

ASIC commissioner Alan Kirkland warned that the practice could lead to "unfair outcomes" for homeowners, many of whom may struggle to find tradespeople or cover additional expenses without insurer oversight. "The easy option for insurers can be the expensive one for homeowners," Kirkland said. "If the amount falls short, consumers can be left shouldering the cost of repairs and paying the difference out of their own pocket."

The report highlighted instances where insurers’ discounted quotes led to disputes. In one case, a builder provided a quote at a 40% discount, which the insurer paid out in cash. When the homeowner requested repairs for that amount, the builder refused, leaving the customer with insufficient funds to complete the work. While some insurers attempted to adjust payouts to account for discounts, ASIC found no consistent systems in place to ensure fairness.

ASIC also raised concerns about insurers’ support for vulnerable customers, with four of the five companies examined having flawed approaches to identifying and assisting those in need. Additionally, three insurers failed to inform consumers that they could change their minds after accepting cash settlements, though two later updated their practices following ASIC’s review.

The rising cost of home insurance is a growing concern, with premiums surging 51% over the past five years, according to analytics firm Finity. Construction and repair costs have also soared, further straining homeowners. ASIC recently advised car owners to challenge insurers over steep premium increases, citing similar issues in the auto insurance sector.

Complaints about home building insurance have rebounded to 2022-23 levels, driven in part by insurer delays in handling claims. The Insurance Council of Australia attributes the financial strain to the climate crisis, estimating that extreme weather now generates an average of $4.5 billion in annual claims—a nearly threefold increase from previous decades.

While ASIC’s report did not identify any legal breaches, it urged insurers to ensure cash settlements reflect market prices rather than discounted rates. The regulator emphasized that better transparency and fairer payouts could help prevent homeowners from being left out of pocket.

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