Inquiry into insurers’ responses to 2022 major floods claims

Check against delivery

My name is Alan Kirkland and I’m an ASIC Commissioner joining you from Sydney. I am joined by Nathan Bourne, the Senior Executive Leader of our Credit, Banking and General Insurance team within ASIC’s Regulatory & Supervision Division.

At the risk of stating the obvious, the issues being examined by this inquiry are big and complex. We will only see improvements to the problems described by witnesses who have appeared through coordinated effort by government, regulators, consumer groups and in particular the insurance industry.

ASIC has a particular role within that complex system. We regulate general insurance as a financial service, and license companies that carry on a financial services business.

The laws that we enforce include:

prohibitions on misleading or deceptive statements;
prohibitions on the use of unfair contract terms in standard form contracts for consumers or small businesses; along with
laws requiring businesses involved in the provision of financial services, which since January 2022 has included claims handling, to hold an Australian Financial Services Licence.
To summarise our role in plainer terms, we are interested in seeing that:

People know what they are buying when they pay for insurance;
They aren’t misled about what it will cost them;
They don’t suffer from the use of contract terms that are unfair; and
If they do have to make a claim, it will be handled efficiently, honestly and fairly.
Last year we completed two major pieces of work on issues of relevance to the matters before this inquiry, looking at general insurers’ pricing promises and claims handling – and I’d like to briefly highlight a few key points from those reports.

In a context where many people are facing difficulty affording insurance, it is particularly important that insurers live up to the promises they make about pricing and discounts.

Our Report 765, When the price is not right: Making good on insurance pricing promises, published in June 2023, revealed systemic failures by a number of insurers to live up to the pricing promises they had made to their customers.

Our intervention on these issues required 11 general insurers (representing 68% of the market) to undertake comprehensive reviews to identify and compensate consumers for broken pricing promises. Our work on these issues has culminated in an estimated $850 million being repaid to 5.6 million consumers from 1 January 2018 to June 2023. In addition to this consumer remediation, in June 2023, Insurance Australia Ltd was ordered by the Federal Court to pay a penalty of $40 million for failing to honour discount promises to customers with NRMA-branded policies. This was the largest penalty imposed by the court against an insurer for breaches of the financial services consumer protection laws.

Claims handling
Our other major piece of work, resulting in a report published in August 2023, examined the claims handling practices of six general insurers comprising 63% of the general insurance market.

The data we collected covered claims lodged between 1 January and 31 March 2022. Given the time-period involved, it involved a number of claims lodged due to the south-east Queensland and northern New South Wales flood events of February and March 2022.

Our findings were published in ASIC Report 768 Navigating the storm: ASIC’s review of home insurance claims. This found weaknesses across five key areas:

Communication with consumers about decisions, delays and complications,
Project management and oversight of third parties,
Recognition and management of complaints,
Identifying vulnerable consumers and responding to their particular needs, and
Resourcing of claims handling and dispute resolution functions.
While evidence to this inquiry points to the complex range of factors that are affecting the home insurance market in Australia, it is important to note that all of the weaknesses identified in our report were and remain within the control of insurers.

Upon releasing the report, ASIC called on insurers to take action to address these weaknesses, with resourcing of claims handling and dispute resolution identified as areas requiring immediate attention.

It is also worth noting some strong parallels in the themes identified in the report of the review undertaken by Deloitte for the Insurance Council of Australia released in October 2023 – in particular:

Weaknesses in claims handling processes
Issues with complaints handling
Poor communication
Problems arising from inadequate processes for managing third parties.
Disappointingly, Deloitte observed that not all insurers all had made changes to the level required to address the issues identified.

Given our concerns about the impact of resourcing on insurers’ ability to manage claims and complaints effectively, this has been a specific area of continued focus for ASIC. ln May and November 2023, we wrote to six large general insurers seeking further information on their levels of resourcing, and how it had changed since 2019.

The responses – which are summarised on pages 17 to 19 of our submission, are illuminating. In short, they suggest that:

While the total level of claims handling staff has increased, the level of permanent claims handling staff has only marginally increased since 2019;
The level of resourcing for dispute resolution has failed to keep pace with the number of complaints; and
This is despite the fact that the proportion of cases resulting in complaints through both internal and external dispute resolution has continued to rise.
I wished to point to this data in particular, because although this inquiry is looking specifically at the insurance industry’s response to the events of early 2022, this data indicates that shortfalls in the industry’s response cannot be attributed solely to the extreme nature of those events. There are signs of deeper, longer standing issues with the industry’s processes, practices and resourcing that meant it was poorly prepared for those events.

In a context where severe weather events are expected to be more frequent and more severe, the overall quality of the industry’s response to the 2022 floods was disappointing.

As a result, we have put the industry on notice. We expect action on all the issues that we identified as weaknesses. And given the time that has elapsed since the 2022 floods and storms and the release of our report, we expect to see a significantly better response by the industry to the events that have occurred and continue to occur through this summer, especially on the eastern seaboard.

We will be monitoring the industry’s response through our regular contact with consumer organisations assisting people with claims, reports we receive directly from the public and issues reported to us by the Australian Financial Complaints Authority. And if we see serious failures by insurers to comply with their legislative requirements, we will consider enforcement action.

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