The Australian Securities and Investments Commission (ASIC) has blasted “harmful” claims investigation practices by motor insurers.

In a report released today, the regulator says some of the investigations over possible car insurance fraud are causing significant consumer harm, eroding trust in insurance and are lacking fair process.

“Consumers expect a fair process to be followed when a claim is investigated. Consumers in our research whose claims were investigated and eventually paid felt angry, frustrated, confused, overwhelmed and helpless during investigations.

“Some consumers experienced difficulty contacting their insurer, hostile interviews, onerous information requests and inadequate support.”

ASIC says investigators targeted mostly valid claims, and data reveals that only 4% of all claims investigated were declined for fraud. In all, 71% of them were paid, 15% were withdrawn and 10% declined for some other reason. Of the total 1.6 million claims in the period, only 4.85% were investigated.

The regulator now says investigation standards in the General Insurance Code of Practice that were proposed by the Insurance Council (ICA) don’t go far enough, and is calling for further improvements.

Its report criticises multiple steps during the investigation process. Some consumers weren’t notified that an investigation had started, received limited information about what they could expect from an investigation, and had difficulty getting information about how their claim was progressing.

Some 25% of claims took two months to finalise, and only some insurers provided a hire car for a few weeks.

ASIC also found that some consumers were declined further insurance even though their claim was found to be valid and paid, making it difficult to get further insurance.

Respondents say they experienced accusatory behaviour that made them feel like criminals, the report says.

ASIC reviewed Allianz, IAG, Auto and General, Suncorp’s consolidated AAI subsidiary, and Youi for the report. It found 21% of Auto and General’s paid and investigated claims took more than four months to resolve, 10% of IAG’s took more than four months and 4% of Allianz’s claims that were eventually paid took more than four months to resolve. Only 2% of Suncorp’s paid investigated claims took more than four months.

ICA spokesman Campbell Fuller told insuranceNEWS.com.au that “insurers believe most investigations are conducted fairly and transparently, but ICA acknowledges a small number of consumers should have received better customer service”.

The council is confident the investigation standards that will be included in the Insurance Code of Practice will satisfy ASIC’s concerns, Mr Fuller says. The standards will be mandatory to ensure compliance and certain outcomes for consumers.

The Financial Rights Legal Centre says the industry should act immediately and rein in its investigators.

“We regularly hear from consumers subjected to threats, bullying behaviour and harassment by unregulated insurance investigators. Consumers endure incredibly long interviews – sometimes over five hours – routinely describe being treated like criminals, and many with poor English skills are not given access to appropriate translators,” Director of Casework Alexandra Kelly said.

“We have been waiting now for a new set of standards for almost three years.

“The general insurance industry needs to introduce a strong and comprehensive set of best practice standards for insurance investigations to restore trust and confidence in the insurance industry,” she said.