An Australian Securities and Investments Commission (ASIC) review of home cover claims handling has found insurers must improve their communications, project management, identification of vulnerable consumers and complaints, and resourcing.

The review looked at data from more than 218,000 claims lodged between January and March last year from six insurers that cover 63% of the home insurance market. The handling of the claims was followed for a further six months, with the review finding examples of good and poor practices.

Deputy Chair Karen Chester says a claim doesn’t have to be handled perfectly “but it must be handled well” and improving practices and resourcing can make an immediate and positive difference to consumers.

“We acknowledge that not all factors that impact claims handling are under an insurer’s direct control, but all five areas we’ve identified for improvement are within the insurers’ control,” she said.

“This is especially so for supporting and resourcing claims handling and dispute resolution teams in the regrettably ‘new normal’ of frequent severe weather events.” 

ASIC says it will conduct further work this financial year on potential unfair contract terms relating to maintenance and “wear and tear” issues, and on reviewing the performance of internal dispute resolution (IDR). New regulations for six-monthly reporting of IDR data take effect from August 31.

The regulator says it has also commenced several investigations related to insurance claims handling practices.

The report, Navigating the storm: ASIC’s review of home insurance claims, encompasses claims arising from severe weather and other events.

Insurers during the review process were facing pressures due to the flooding catastrophe, which became the costliest insurance event on record in Australia, ASIC notes, while calling on firms to further analyse claims resourcing and immediately address under-resourcing of complaints handling functions.

“We recognise insurers had to operate in difficult times, however, insurers should expect that similar circumstances will arise in the future and need to be prepared to meet their claims handling obligations,” it says. “We note all insurers were operating in the same external environment and there was different performance across insurers, suggesting room for improvement.”

Insurers need to consider permanently enhancing their claims handling capacity and responsiveness and should prepare for disasters rather than scaling-up once they have occurred, it says.

The review finds that insurers that proactively project managed repairs and sought feedback were more likely to deliver a positive experience, but few appointed an internal project manager, meaning the often-complex assessment and repair process was regularly managed by the consumer.

ASIC says insurers must maintain adequate oversight of third parties, including assessors, and highlights the importance of clear communication throughout the process, including around timings and reasons for areas of cover declined.

The regulator says insurers should do more to explain wear and tear and maintenance exclusions, which are not well understood, and should clearly set out property maintenance expectations.

“Insurers need to be careful to ensure that terms do not impose overly broad and open-ended obligations that amount to unfair contract terms,” it says.

As part of the review process ASIC has also given individual feedback to the participants: Suncorp, Allianz, Auto & General, IAG, QBE and Youi.

The Insurance Council of Australia (ICA) says the report acknowledges that claims handling generally is under strain, in part due to external forces such as severe weather events, skilled worker shortages and supply chain issues putting significant pressure on resources.

ICA says it will look closely at the issues covered, and the process is already underway through its engagement of Deloitte to review flood responses and to provide recommendations on practices needing improvement.

“Insurers’ response timeframes, resources deployed, claims handling, complaints handling, communication with policyholders, and engagement with stakeholders will all be examined as part of the review, which is expected to be completed in October,” a spokesperson said. 

The Financial Rights Legal Centre has called on to insurers to radically improve their communications and says clear and consistent policies, particularly around wear and tear exclusions need urgent attention.

CEO Karen Cox says insurers have shifted the onus on wear and tear to already stressed, and at times traumatised, customers to collect evidence, including expensive and hard-to-obtain expert reports.

“The industry needs to develop a consistent approach to maintenance and wear and tear, detailing what is required for a property to be maintained,” she said.

The ASIC report is available here.