We see the headlines every week. An insured customer has their claim denied, they tell their story to the media and it’s portrayed as a struggle between good and evil, brave Aussie battler against heartless and faceless corporation.

Quite often the claim is paid regardless of its merits, because the insurer feels its reputation and therefore its brand is under attack. It’s a trend that has some industry leaders – both insurers and brokers – increasingly concerned.

“It’s terrible,” one leading broker told insuranceNEWS.com.au. “I’ve been involved in three claims where insurers have paid to shut the media up.

“It was clear that [the claims] should never, ever, ever have been paid. But you have statements made by people in the media that are completely erroneous, not factual.”

Perhaps the problem stems from the average consumer’s lack of insurance literacy. It’s a recognised issue that the industry knows must be dealt with – product disclosure statements, which were originally envisaged as a simple guide to a policy, have been lawyered to the point that they’re rarely read or understood.

As a result, many believe that if something – anything – goes wrong with their house or car, their insurer will pay. They don’t understand that in fact they’re covered for a specific set of perils and things such as natural deterioration are excluded.

General media journalists often fail to consider such issues, instead painting an overly simplistic picture. Where there’s a victim there has to be a villain. The denied claimant usually has an emotive back story – they’ve paid premiums for decades, and yet in their hour of need their insurer wasn’t there for them.

But by not addressing the precise wording of the policy and how it applies to the claimant’s circumstances, are reporters neglecting their duty to properly inform the public and tell the whole story?

And shouldn’t these claimants first be directed to the Australian Financial Complaints Authority – a free dispute resolution service that’s dedicated to fairness and with the expertise to address any inherent complexity?

“I am very cynical about the media’s ability to inform the consumer,” the industry leader said. “The claims I’ve been involved in, the insurer has just said ‘this is the last thing we need, let’s just pay them to shut them up’.

“But it didn’t solve the problem, it didn’t inform the consumer. The media makes it look like, ‘well, if we didn’t get involved, this wouldn’t have got solved’. And they’re absolutely right, because guess what? It wasn’t a claim.”

So why would a claim that’s not a claim be paid? It sets a worrying precedent, and if it happens too often it inflates premiums for everyone. And doesn’t it also make it look like the insurer was trying to get away with something in the first place?

An underwriting source told insuranceNEWS.com.au that if a claim denial is clear-cut and the claimant is “trying it on”, then the insurer may decide to stand its ground and take the reputational hit.

But if there’s some grey area in the claim, or the insured is vulnerable in some way, then an ex gratia payment may be considered. It’s worth pointing out that insurers occasionally do this anyway. But they can’t and won’t talk about such instances, because it would encourage others to expect such treatment.

And sometimes, paying up is just the easiest way out.

“These things can be amplified through social media and there is the reputational damage to consider,” the source said.

“Making a payment does rescue the situation a bit, and sometimes the amount of money isn’t huge. Paying could cost less than if even a small number of people see the report and think ‘I’m never buying insurance from them again’.”

But the source agrees it’s hard for the industry to cut through with its point of view.

“There is very little interest in understanding both sides of the story. You could give the most black and white reason why the claim shouldn’t be paid, but it doesn’t matter once they’ve decided the angle they want to run.”

Mark Forbes, Director of Melbourne-based crisis communications agency Icon Reputation, told insuranceNEWS.com.au that getting an “external perspective” can help an insurer decide how to respond.

And he says passing the “pub test” is critical.

“Answer the question, are we clearly in the right here, legally and morally? Do our actions pass the ‘pub test’ – would those around a bar agree with our decision? If the answer isn’t clear cut, evaluate a settlement.

“If you do stand firm, ensure you engage openly and clearly. Be prepared to defend your decision publicly and on social media platforms. If you don’t feel comfortable making a public defence, reconsider your decision.”

He says reversing an original decision is an admission of error and may encourage others to make similar claims. But ultimately, it’s a calculation as to which course of action will be more damaging.

“These decisions are not just about fairness and fine print, they are business decisions that calculate reputational risk and its potential commercial consequences for a brand,” he said.

“We are living in the era of brand purpose, when brands, including insurers, proclaim an interest in the broader good, not just profit. If your marketing embraces purpose, expect to be judged harshly if your actions are perceived to conflict with that.”

The media’s reluctance to address complex policy wordings isn’t about to change, Mr Forbes says.

“Media outlets are attracted to stories that can engage their audiences emotionally, and that means focusing on people.

“Media are drawn to drama and conflict, and will often portray people as victims of a heartless corporation. It is in the media’s nature to simplify things, to cut through technical arguments in a way their audience will understand.”

But he says the very real problems with claims handling that have been highlighted in the past, and addressed by the Hayne royal commission, have helped shape the landscape that insurers now face.

Before moving into corporate and crisis communications Mr Forbes edited both The Age and The Sunday Age, and says he has experience on the issue “from both sides of this fence”.

“I ran a series of stories from crusading journalist Adele Ferguson, beginning with insurance companies and moving on to the behaviour of the big banks. The behaviour she detailed by the [Commonwealth Bank’s] insurance arm [Comminsure] was morally reprehensible, using medical definitions outdated decades ago to ‘legally’ reject claims.

“Comminsure and CBA initially refused to engage with the allegations, then stonewalled and bullied. We didn’t expose it at the time, but CBA withdrew millions of dollars in advertising from Fairfax publications, which only strengthened our resolve.

“Rather than engage, address the issues and rectify, it stood behind decisions that were morally indefensible. Ultimately it resulted in a royal commission and resignations at the highest levels.”

Negative stories can have “massive implications”, Mr Forbes says, with “CBD streets littered with the corpses of CEOs who have botched the handling of reputational crises”.

“Broadly, media will be sympathetic to individuals who they see as being poorly treated by insurers,” he said. “They believe their audiences will empathise with them, rather than faceless corporations.

“Mark Twain said ‘never pick a fight with someone who buys ink by the barrel’. We need a digital version of that quote. Some battles should be fought, but be sure of your ground before you do so.”