Insurers are unfairly pursuing renters for accidental property damage costs after their landlords make claims, consumer group Choice and legal centre WEstjustice say.

The advocacy groups are demanding the corporate regulator investigate industry practice across landlord insurance and assess if insurers have misled people, or otherwise breached their licensee obligations to act efficiently, honestly and fairly.

They want an “urgent investigation” of insurers, who they accuse of sending legal letters and persuading renters to hand over money they are “unlikely to owe” in an abuse of power. In addition, insurers should publicly commit to not pursuing people who rent for unintentional damage, and disclose systems to make sure “no one is hounded for debt they don’t owe”.

“Australian insurers could immediately put in place policies and practices that stop harm to people who rent,” Choice Director of Campaigns and Communications Erin Turner said.

The Insurance Council of Australia (ICA) told insuranceNEWS.com.au today it welcomed further engagement via its Consumer Advisory Committee to explore issues raised by Choice, including landlord insurance.

“In general, we note that recoveries play a role in placing downwards pressure on premiums,” the ICA said, noting also that it has recently launched a new code which sets out clear obligations for insurers in relation to financial hardship.

Choice and WEstjustice say many landlord claims are “flimsy” and lack proper assessment of liability.

They presented the Australian Securities and Investments Commission (ASIC) with what they say is evidence of insurers pursuing debts from tenants after a claim is made on landlord insurance without evidence that the renter is responsible for any damage.

Examples presented to ASIC include GIO seeking more than $300,000 for fire damage two-and-a-half years after a blaze, Chubb pursuing a renter for $3600 after a lock failure saw her trapped on a balcony and she called the fire brigade, and QBE pursuing $183,000 for fire damage.

Ms Turner says insurers sending an “unexplained bill for hundreds of thousands of dollars is a nightmare for anyone on the receiving end” and fails the “basic standard of fairness”. Insurers are taking advantage of people when they try to recoup costs without doing due-diligence to see if the debt is legitimate, she says.

“When Choice or WEstjustice approached insurers about these cases, some insurers dropped the claim. This is a clear sign that they should never have sent the demand in the first place,” Ms Turner said, urging insurers to “come clean” about their systems and billing practices.

“Insurers have to be accountable when demanding money.”

New Zealand laws give clarity and certainty that renters can't be held liable for damage unless it was intentional and tenants are treated as “third-party beneficiaries” under landlord policies, and Australia needs much clearer rules about the limits of insurers to pursue debt from people who rent, the advocacy groups say.

They want insurers to up their due diligence about a renter's actual liability before pursuing them and say cover providers currently “take advantage” of people without determining if the debt is legitimate.

“It appears that insurers are hoping that renters won’t research their rights and just pay up,” WEstjustice Acting Legal Director Matthew Martin said.