The House of Representatives disaster inquiry has uncovered significant dissatisfaction with communication between brokers and insurers.

MP Judi Moylan, a member of the House of Representatives Standing Committee on Social Policy and Legal Affairs inquiry into the insurance response to natural disasters, told last Thursday’s hearing in Canberra that people trying to directly contact their insurers “were referred back to their broker, and sometimes their broker is ill-equipped to handle the claims process”.

“Basically they are a selling operation and do not handle claims very well,” she said.

IAG CEO Mike Wilkins told the inquiry brokers usually want to be involved in claims. He said when a claim is lodged, particularly for personal lines, IAG encourages the customer “to come to us and also to involve the broker in that claims process, because the broker in theory is acting as an advocate for the customer at that time”.

CGU National Claims Manager James Merchant said CGU’s model is for the insurer to manage the claim, although the broker may act as a middle person. In about half of all claims CGU communicates directly with the client.

He told the Canberra hearing there are lessons from this year’s disasters about how to improve communication with clients when intermediaries are involved.

“One of our learnings was to ensure that we had a contact agreement with the customer in question and ensure that they were receiving information, be it from us or via their agent, to keep them fully informed throughout the process.”

Mr Wilkins said IAG is well on the way to offering flood cover in Queensland and Victoria, and many insurers have not offered flood products in those states because there was inadequate data to price the risk.

He said it would be irresponsible to underwrite flood without the data.

“Having said this, every sensible insurer seeks to pay claims in a responsible way because ultimately that helps our business,” he said. “The idea that insurers would seek to avoid paying valid claims makes no logical sense. We would lose customers and it would certainly harm our businesses.”

He said a serious response to flood and other natural perils would involve mitigation, not just insurance.

Government assistance could discourage property-owners from mitigation. Mandated insurance might have a similar effect on councils and state governments, who would expect insurers to provide a safety net.

Committee member Sharman Stone MP said the committee has received evidence that instead of disputing an insurance claim, the customer gave up and sought government aid.

She said a survey of dissatisfied clients revealed pressure from IAG subsidiaries NRMA Insurance and CGU to withdraw their claims. Mr Wilkins said his experience was that the opposite was the case.

He said claims costs Australia-wide have risen 5-10% due to rising repair and reinsurance costs.

Governments would also earn more from the GST and stamp duties calculated on higher premiums.