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Consumer groups target ‘wild variance’ in terms and conditions

Consumer groups have proposed reforms to address “wild variance in terms and definitions” and are calling on the Federal Government to re-examine the flood definition, in a submission to a parliamentary inquiry into insurers’ responses to last year’s flooding.

The submission from Financial Rights Legal Centre, Choice, Consumer Action Law Centre and WEstjustice makes 34 recommendations across claims handling, insurance contracts, affordability, internal dispute resolution and land use planning and mitigation.

“The 2022 floods have brought to light fundamental challenges in accessing and affording insurance across Australia,” the groups say. “We view the government’s inquiry into insurers’ responses to 2022 major flood claims as a crucial opportunity to review and address these issues.”

The groups say a letter last year from the Australian Securities and Investments Commission (ASIC) outlining its claims handling expectations should be codified either in the General Insurance Code of Practice or into the regulator’s information sheet on licence obligations related to claims handling.

ASIC and the Australian Prudential Regulation Authority (APRA) should also collect and publish recurrent data on claims handling timeframes, outcomes and disputes.

“It is standard practice for APRA to release data on life insurance claims and dispute statistics twice a year,” the submission says.This practice could be replicated in the home and contents insurance market.”

The groups say the code of practice should be amended to allow for cash settlement amount reviews in certain circumstances and that people should be directed to obtain legal advice before accepting a cash settlement.

How insurance contracts are designed, the way policy terms and definitions vary, and the coverage provided by each insurer via a confusing array of inclusions, exclusions, and definitions are central to the difficulties faced by consumers in obtaining insurance to cover their risks, the submission says.

It reiterates calls for an effective standard cover regime and raises concerns over how flood is being included in policies in some cases.

“As a part of its announced review of natural hazard definitions, the Federal Government must re-examine the definition of flood, its impact on the market and the implications of the NRMA policy wording in undermining the intention of the standard definition,” the submission says.

The groups support in-principle the Insurance Council of Australia’s application to the Australian Competition and Consumer Commission to seek the ability to discuss the creation of a standard definition for “maintenance” and “wear and tear”.

But it also recommends that defect clauses and pre-existing damage, as related and similar terms, be included in the process.

Consumer groups have continued to press for a trial of subsidies for people on low incomes who can’t afford insurance and say the Federal Government should conduct an independent review of the current and future affordability of home insurance, particularly for households on lower incomes in extreme weather prone areas.

On resilience, the groups say insurers should be encouraged to offer multi-year premium discounts for mitigation work, and back governments offering assistance to low-income earners in disaster-prone regions to undertake approved cost-effective measures.

“The floods across the East Coast of Australia in 2022 have had a devastating effect on people that is still being felt today,” the submission says.

“While home and contents insurance is pivotal for post-flood recovery, many affected people find themselves increasingly unable to access its benefits.”