Watchdog warns insurers are offering insufficient cash settlements
The corporate watchdog warns that insurers are offering cash settlements for home insurance claims that do not cover the full cost of work needed.
Australia's corporate watchdog, ASIC, has expressed concern over insurers' use of cash settlements for home insurance claims, as they may not adequately cover the true cost of repairs. ASIC has been reviewing the industry's use of cash settlements since the impacts of Cyclone Jasper in Far North Queensland in December 2023. At least 63% of final home insurance claims included a cash settlement, putting consumers at risk of insufficient funds to cover repairs.
ASIC's report found that insurers often rely on a single quote from a preferred supplier, which could be lower than the actual cost if the homeowner sources repairs independently. Insurers have an obligation to ensure their cash settlement offers are fair and communicate with consumers in terms they understand. Homeowners like Julia Hirning and Leon Wuttrich have faced difficulties in getting sufficient funds from their insurers to repair their damaged homes, leading them to sell or complete repairs themselves.
ASIC recommends that insurers provide a Cash Settlement Fact Sheet to help consumers understand how the settlement amount is calculated and what is included. The Insurance Council of Australia has stated that there has been industry improvement in explaining cash settlements, and a review of the General Insurance Code of Practice will set stronger obligations on cash settlements and support vulnerable customers.
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