Cash settlement failings reflect issues “up and down the chain” as well as systemic problems, federal flood inquiry chairman Daniel Mulino said at the launch of a Financial Counselling Victoria report.

The report says households often accept underquoted cash settlements that are not in their best interests, and consumers are at a knowledge and power disadvantage. 

Dr Mulino says the House of Representatives committee inquiry, which is due to report by October 18, has heard evidence around a lack of clarity in communication and processes, and problems involving expert reports, assessment decisions and internal dispute resolutions processes.

“Sometimes, cash settlements can be reflective of some or all of the above, in that the cash settlement can be the point where the client almost gives up through exhaustion,” he said.

“It’s not a resolution in the sense that the person is now back in a home that’s rebuilt or repaired or fixed.”

He says the gap between the cash amount and what is required can reflect systemic issues around the need to build back better amid rising risks and, while appropriate in some circumstances, the settlements raise questions about the transfer of risk from large organisations with their resources to vulnerable individuals.

“Our regulatory system does have some guardrails, but I think this report points to the fact we need to think about whether or not those guardrails at the moment are sufficient,” Dr Mulino said.

Findings in the report – Unsettled: Climate Risk and Cash Settlements in Home Insurance – are based on counsellors’ casework following the October 2022 floods.

The report calls for underinsurance protections, standardisation of terms, flexibility for building back better and changes to how amounts are determined. It proposes having an independent body such as the Australian Financial Complaints Authority or the Australian Securities and Investments Commission involved in obtaining expert reports. 

Maribyrnong Community Recovery Association president Madeleine Serle, who provided a case study on poor claims handling and workmanship, says there are obstacles to building back with greater resilience and the insurance industry is inefficient.

“I have never seen such a disorganised industry in my entire life. It is absolutely shambolic,” she said at the report launch. “The waste of money, the waste of resources is beyond incredible.”

Report author Antonia Settle says issues around cash settlements will probably worsen with rising climate risks.

“We need to accept more regulation over the insurance sector,” she said. “Insurers are at the coalface of climate risk. Let’s not pretend this is a regular private market.

“Weather-related risks are no longer amenable to hands-off private coverage and we can see that very clearly in the cost of premiums. This is public policy.”