Consumer advocates today called for an immediate improvement in insurers’ handling of flood claims, saying the industry “can and should clean up their own house now”, as a federal parliamentary inquiry got under way.

The House of Representatives Standing Committee on Economics is looking at the industry’s response to the 2022 floods, the costliest insured catastrophe in Australia’s history, with 244,000 claims costing more than $6 billion.

In this morning’s hearing, consumer advocates reported seeing claims declined on “spurious” grounds, with insurers relying on “vague assertions” about alleged lack of maintenance or wear and tear. They say an over-reliance on tradie reports and use of third-party claims support contractors is counterproductive to the claims process and eventual outcomes.

“I appreciate that ... the magnitude of claims was so extreme that insurers had to onboard contractors they hadn’t used in the past, or wouldn’t normally use, but really it’s no excuse,” Financial Rights Legal Centre Senior Policy and Communications Officer Julia Davis told the inquiry.

“Insurers could today decide to better resource claims handling, to communicate with consumers in a consistent, transparent and compassionate manner, to clearly inform them how their claims will be assessed and how it is progressing, and to provide appropriate support for customers that are vulnerable.

“Insurers could today stop denying claims on spurious and vague assertions of a lack of maintenance or wear and tear without evidence or satisfactory explanation. Insurers could invest in better oversight and management of their third-party consumer-facing contractors to address the appalling behaviour we have seen.

“Insurers could do all of these and more today, without waiting for this inquiry to make its findings, and if they did, they’d reduce the record number of complaints that [the Australian Financial Complaints Authority] received about insurers.

"We agree with insurers that governments need to step in and address affordability issues, and fund mitigation projects, and better coordinate data and responses, but insurers can and should clean up their own house now."

Insurers have come under fire over the use of maintenance or wear and tear exclusions after a General Insurance Code Governance Committee report last year said 55% of denied home claims were rejected on that basis, and consumer advocates were asked about this by committee chair Daniel Mulino. 

Consumer Action Law Centre Managing Lawyer Philippa Heir says there is a lot of confusion, even within insurance, about the exclusions used. And when insurers apply exclusions, she says, “they often contain tenuous or no links” between the exclusion and the damage.

“So, the alleged lack of maintenance or wear and tear and the damage that’s been sustained ... I think they don’t set out what maintenance they think was required, and the difference that would have made.”

Ms Davis says consumer advocates are “seeing over and over again ... a complete reversal of the burden of proof”.

“When it comes to denying a claim, the consumers should not under the law be required to disprove an exclusion when they have demonstrated a prima facie claim for covered damage,” she said. “And insurers are completely just negating their responsibility here.”

Ms Heir says consumer advocates’ experience since the 2022 floods is that insurers have been less inclined to make “genuine attempts” to resolve claims early.

The inquiry will continue tomorrow with the Australian Consumers Insurance Lobby, Restoration Industry Association of Australasia, ARC Justice, Financial Counselling Victoria and Financial Counselling Australia to appear.

Insurance CEOs are scheduled to appear on Monday and on February 9. The committee will also hear from the Australian Securities and Investments Commission, the Australian Prudential Regulation Authority and the Australian Financial Complaints Authority as part of its four weeks of public hearings.