A Deloitte review of insurer responses to record flooding in southeast Queensland and NSW last year has found inadequate scenario planning and outdated systems and processes were exposed by the scale and complexity of the catastrophe.

Training short-cuts were taken as insurers struggled to add new staff, some policy terms, such as those requiring a hydrologist, exacerbated delays, while co-ordination issues between insurers and government affected support program access, debris clean up and efforts to build back resiliently.

“Catastrophe planning, workforce planning, technology and systems had never been tested – either in reality or through scenario planning – for an event of this magnitude,” the report commissioned by the Insurance Council of Australia (ICA) and released today says.

Deloitte makes recommendations across catastrophe preparedness, customer experience, resourcing capability, operational response, governance and transparency, co-ordination with government and the code of practice. For each, it identifies areas that could make a significant improvement.

ICA CEO Andrew Hall says insurers acknowledge there were failures of systems, processes and resourcing that impacted customers, leading the industry to proactively review its performance.

“The industry apologises to those customers for whom claims were not handled to the standard the industry strives to achieve, and we are working hard to better prepare for future extreme events,” he said.

“The timing of this flood, which followed 12 insurance catastrophes since the Black Summer bushfires as well as the global pandemic, compounded insurers’ challenge, yet the industry is on track to finalise every valid claim, rebuild homes and repair communities, and remain prudentially strong.”

ICA has accepted the recommendations in principle and says it will provide a progress report in the second half of next year.

Deloitte says the floods will be a defining event and a historical marker. More than 14,000 people needed emergency accommodation, 5000 homes became uninhabitable and 23 lives were lost.

Insurance losses from the event, identified as Cat 221, are estimated at around $6 billion. The 242,000 claims lodged followed an already high number of open claims after six declared events in 2021.

In the future, with the floods as a benchmark, community expectations for catastrophe responses will be higher, Deloitte says.

“Without investments in preparedness to capture the learnings from Cat 221, at some point in the future the community may question whether the insurance industry sold a product that could not be delivered,” it says.

All insurers had a catastrophe plan in place before the record flooding, but the extent of the event exceeded all expectations, and operational scenario planning was not completed or valued consistently across industry in the lead-up to the event, the report says.

On catastrophe preparedness, Deloitte calls for improved catastrophe response plans, scenario planning and stress testing and it suggests that where policy terms are expected to create bottlenecks or delays during high volume periods, insurers should consider if the terms or associated claims processes can be changed.  

The report identifies communication as key in improving customer experience and also suggests insurers should embed a “voice of customer” into their operations, possibly through an advocate.

The report says insurers should consider how to minimise the number of staff that need to be on-boarded at the time of an event and, if significant recruitment is required, how to effectively train and uplift the capability of the new workforce.

Operational response proposals include reducing manual processes, having an integrated “single claims (customer) view”, including related to third-party suppliers, having an app or portal for customers to see progress, and considering the use of advanced technologies such as machine learning and generative artificial intelligence to improve handling times and customer experience.

A General Insurance Code of Practice “Extraordinary Catastrophe” provision, which has never been triggered and in its current form provides relief to the industry but not policyholders, should be reworked as part of the upcoming code review so outcomes can be improved, it says.

The Deloitte review included Auto & General, Allianz, Hollard, IAG, QBE, RACQ, Suncorp and Youi, which account for almost 99% of claims from the catastrophe. It focused on property damage claims in personal building and contents, personal motor and SMEs.

Other groups consulted included regulators, the Australian Financial Complaints Authority, consumer groups, reconstruction authorities, reinsurers, researchers, businesses in the supply chain and overseas insurance experts.

The report is available here.