Brought to you by:
Insurance Advisernet
Insurance Advisernet

Underinsurance fears flagged as bushfire losses hit $1.34 billion

Facebook Twitter LinkedIn Google

Insurance industry sources have warned that significant numbers of bushfire-affected homeowners could be underinsured, and that the issue could develop into a political storm.

The latest Insurance Council of Australia (ICA) figures released today show that claims from the catastrophe declared on November 8, which has destroyed large areas of NSW, Victoria, SA and Queensland, have increased to 13,750, totalling $1.34 billion.

ICA warns that a “sharp increase” in claims is expected this week as household property assessments are undertaken and large commercial claims are lodged.

As claimants look to rebuild, there are fears many will realise their sum insured is not sufficient. Some might have opted for a lower sum to reduce premiums, while others may be caught out by having to rebuild to new bushfire standards, which require more expensive materials.

Underinsurance is a particular problem in NSW where the Emergency Services Levy (ESL) and other insurance taxes account for more than 50% of premiums.

“Undoubtedly underinsurance will be an issue and it will be very widespread,” one industry source told insuranceNEWS.com.au.

“It will turn into a political issue when that becomes apparent, and there will be finger-pointing.”

The Federal Government wants to keep a close eye on insurers’ response to the crisis and Treasurer Josh Frydenberg has asked to be provided with significant data on claims. ICA is currently consulting with insurers on how best to meet the request for information.

ICA spokesman Campbell Fuller told insuranceNEWS.com.au it’s too early to predict how big an issue underinsurance will be. But while the level of coverage appears “relatively strong”, underinsurance is likely to be an issue for “many property owners”.

“The industry is concerned about underinsurance in these bushfire affected regions,” he said.

He says while insurers point customers to insurance calculators, which provide “significant guidance”, the ultimate responsibility for nominating a sum insured lies with the homeowner.

“Many guess the sum insured rather than using the calculators, and some will not have updated their policy to reflect improvements made to the property,” he said.

Affordability is also an issue, he says, particularly in NSW due to “exorbitant and unfair” taxes.

NSW Treasurer Dominic Perrottet has again ruled out revisiting reform of the state’s ESL, much to the industry’s disappointment.

The National Insurance Brokers Association has written to the NSW Premier and Treasurer, urging completion of the reform that was abandoned in 2017.

CEO Dallas Booth writes that the current system is “inequitable and seriously unfair” and requests a meeting to discuss the issue.

The industry is also pushing governments to commit to paying for debris removal from all bushfire affected properties – insured or not. ICA says this policy worked well after the Black Saturday disaster in 2009.

“Best practice for debris removal is for a centralised, government-funded clean-up where a contractor is engaged to remove debris for all properties,” Mr Fuller told insuranceNEWS.com.au.

“This helps preserve the sum insured for the rebuild, and treats all property owners equally.”

Meanwhile, consumer groups are urging the Federal Government to regulate claims management services to prevent exploitation of victims following disasters.

The for-profit claims advisers, which are not subject to any specific regulation or oversight, typically charge a percentage of cash settlement offered to homeowners in return for helping with claims.

But the Consumer Action Law Centre (CALC) says a cash payment may not be in a person’s best interests, as the amount is not guaranteed to fully cover rebuilding costs, while a percentage rate offers an incentive to inflate or drag out claims to boost fees.

“At a time when the members of our community are at their most, vulnerable, the last thing they need to deal with is an exploitative business,” Senior Policy Officer Cat Newton said.

CALC, the Financial Rights Legal Centre and Choice have made a joint submission to Treasury on draft legislation to make insurance claims handling a financial service, arguing it needs to be extended to claims management services acting on behalf of a consumer.

The change would mean the claims handlers would have to hold an Australian Financial Services Licence, would be required to act efficiently, honestly and fairly and would be subject to Australian Financial Complaints Authority processes.

The Australian Securities and Investments Commission last week warned consumers and small business owners to watch out for fictitious or unscrupulous tradespeople, repairers or firms offering to assist them with their insurance claim.

Insurance companies are continuing to provide additional disaster relief assistance as well as responding to policyholders.

Zurich, via its Z Zurich Foundation has donated an extra $60,000 to the Red Cross, on top of $40,000 provided to the Red Cross and the Rural Fire Service in November.

The insurer is pledging up to $500,000 in support of the crisis, with donations received to the Red Cross via this link to be 50% matched by the Foundation. 

Suncorp, which has donated $500,000 to relief agencies, said yesterday it is providing unlimited paid emergency response leave for employees who are volunteer members of State Emergency Services, the Country Fire Authority and RSPCA when they are called upon to assist.

And Sportscover Australia is making available up to 100 unconditional grants of $250 to assist sports groups and facilities replace equipment lost due to this summer’s fires. The offer is being provided through insurance brokers.

ICA today opened an online register to help local tradespeople and builders play a “significant role” in rebuilding their regional communities.

Qualified and reputable builders and tradespeople are invited to register their details at www.disasters.org.au.

“The information will be publicly available for use by insurance companies to source additional tradespeople for property rebuilding and repairs,” ICA says.

“It may also be used by residents, businesses and government agencies that are seeking reputable tradespeople for privately funded construction.”

ICA is also hosting insurance hubs to help customers in southern NSW. Disaster recovery specialists from ICA and insurance companies will assist policyholders with insurance questions and help with the insurance claim process.

Hubs will also be established in bushfire zones in SA and Victoria in the next week.