A report examining insurance problems after a cataclysmic series of natural disasters across Australia offers important lessons for the whole industry
The independent body that monitors the Insurance Brokers Code of Practice (the Code) urges subscribers to read a recent report by the Sydney-based Financial Rights Legal Centre (Financial Rights), which shows how insurers frequently fail vulnerable consumers in the case of extreme weather events.
The report addresses key issues faced by 706 insurance clients who sought advice about claims after a series of extreme events between November 2019 and April 2021, which included bushfires, hailstorms, flooding, storms and a cyclone. Released in July, ‘Exposed: Insurance problems after extreme weather events’ also recommends a number of reforms for the insurance and regulatory sectors.
While the report is directed at general insurers, the Insurance Brokers Code Compliance Committee (the Committee) believes the problems it highlights are equally relevant to insurance brokers and that adopting the report’s recommendations would be good industry practice for all insurance broking firms.
Obligations relating to such events are outlined under Service Standard 9 of the Code:
‘We will respond to catastrophes and disasters in a timely, professional, practical and compassionate manner in conjunction with any industry-wide response’.
Code subscribers are also reminded that any actions taken when acting for the insurer are covered by obligations in the General Insurance Code of Practice in their role as distributor or service provider.
The report was brought to the attention of the Committee by its Consumer Representative, Julia Davis, who works for the Financial Rights. This not-for profit community legal centre includes a service which provides specialist legal advice to people across Australia in the area of consumer insurance and, more recently, to small businesses and farmers affected by extreme weather events.
As well as identifying key issues and outlining recommendations to address them, the report includes real-life stories about the experience of making a claim in the wake of extreme weather events.
While it notes that the majority of claims made to insurers were dealt with in an efficient, timely and sensitive manner, “the compounding effect on pre-existing trauma when they are not, is often devastating”.
The report is particularly timely given the considerable community and regulatory interest in how well the financial services sector meets the needs of vulnerable clients and those experiencing financial hardship. The Committee has addressed this issue in its recent own motion inquiry into Premium Funding.
Significantly, Financial Rights reported that around 14% of its clients affected by extreme weather events in this period sought advice and support about financial hardship issues, rather than insurance. “Many clients were unable to meet commitments under loans or other household bills. This was particularly so in regional and remote areas where disaster events sometimes had profound impacts on the local economy.”
Storm and hail-related insurance matters comprised 42% of Financial Rights enquiries during the period the report covered, followed by 23% for hail, 20% for bushfire, 13% for flood and 2% drought. Unsurprisingly, around 70.2% of clients and 71.8% of the services Financial Rights delivered concerned home building and/or contents insurance.
The report identified and examined five main areas of concern for policy-holders making claims related to extreme weather events:
- Poor claims handling (delays, poor communications, bullying, and errors).
- Cash settlement offers (including low-ball offers to rebuild and cash-settling).
- An over reliance on defect clauses (denial of claims due to damage allegedly caused by faulty construction or design of a home instead of the extreme weather event).
- Underinsurance (insufficient cover to rebuild, no cover at all, or no cover for the specific extreme weather event).
- Maintenance issues (denial of claims due to a lack of maintenance when the weather event was of such a magnitude that any amount of maintenance would have been insufficient to prevent the damage).
The Financial Rights made a series of wide-ranging recommendations aimed at improving outcomes in the five areas of concern identified by the Financial Rights extreme weather clients. These were directed at insurance providers and sellers, at regulators, and at state and Federal governments. They encompass both specific changes to processes and procedures, and policy initiatives at a national level.
The Committee encourages Code subscribers to consider all recommendations related to selling insurance products – and particularly the implications for clients choosing to underinsure – and to embrace the guidance provided to those who assist and support clients in the progression of claims.
The number and severity of extreme weather events that occurred in the 18 months covered by the Financial Rights report – bookended by the Black Summer bushfires and Cyclone Seroja in April – was extraordinary. Unfortunately, these won’t be the last natural disasters Australians suffer. Many clients navigated an unnecessarily difficult path while making an insurance claim in that terrible 18 months. Learning from their experiences seems the least the industry can do.