Allianz has been ordered to pay a community benefit payment of $50,000 for a code of practice breach, in the first such financial sanction imposed on an insurer by the governance committee.

The breach relates to the denial of a claim from a policyholder in regional Australia who was not covered for flood but who was affected by the February 2022 catastrophe in NSW and southeast Queensland.

Allianz assessed that the inundation was due to floodwater, not rain or run-off, and declined the claim based on several documents including a hydrologist report.

The General Insurance Code Governance Committee says it launched an investigation after receiving a referral alleging two properties in the same neighbourhood received a different claim outcome from Allianz even though their policies also excluded flood. 

Allianz reviewed the case, expanded the scope to include an additional 47 claims linked to the catastrophe, and subsequently accepted five previously denied claims in part or full. It also changed its decision on the disputed matter affecting “policyholder A” to partially accept it. 

“We determined that Allianz significantly breached its obligation to consider all relevant facts when assessing claims. This obligation is set out in paragraph 69 of the code,” the code committee said today.

The committee says Allianz’s failure to identify inconsistencies in the hydrology report, together with the absence of effective controls and processes to mitigate the risk of inconsistent claims decision processes, constituted a significant breach.

The $50,000 community benefit payment will be paid to a registered charity and the company must also publish details of the significant breach on its website.

In addition to the sanction, Allianz paid out $216,807 for policyholder A’s claim and the additional five claims on which it changed its decision.

“Allianz has since implemented improvements in its claims handling processes, ranging from expanded resourcing of its claims staff to an external review of its claims handling model,” the code governance committee says.

“Allianz is also exploring the use of technology to provide a more automated solution to provide greater visibility of claims outcomes by location.”

The insurer says on its website that it acknowledges the code committee’s determination, and notes it received more than 31,000 claims arising from the February/March catastrophe.

“At Allianz, we are committed to ensuring that our customers are supported and protected, especially in challenging times such as when making flood-related claims,” it says.

“We are actively engaging with the [code committee], the Australian Financial Complaints Authority and the Insurance Council of Australia to consider the broader industry implications and practical implementation of the [committee’s] determination, particularly as it relates to the use of hydrology reports.”

In its statement Allianz says it made "a commercial decision" to pay the claims. Such wording is usually used when an insurer retains a belief that a claim should not be paid, but makes a commercial decision to do so.

Allianz recently announced it will move to include flood as standard in householder policies, meaning hydrology reports will no longer be required when assessing flood-related home claims.

Sanctions the code committee can impose include publicly naming companies that breach the code, requiring compensation and imposing a community benefit payment of up to $100,000.  

The code says the size of the community benefit payment must be in proportion to the insurer’s gross written premium and number of customers.

The ability to enforce a financial penalty was introduced in the 2020 update of the code of practice, which took effect in 2021 and is now being reviewed as part of a regular schedule.