ASIC observes poor claims handling among gen insurers

Insurance claims ASIC

Corporate regulator ASIC has identified several deficiencies in the claims handling practices of Australia’s general insurers, extending to potential violations of the industry’s Code of Practice, and has urged for improvements in how insurers communicate with their customers, manage projects with third parties, and handle complaints.

As part of its Review of home insurance claims report, triggered by the introduction of new claims handling obligations for AFS licensees, ASIC also flagged issues around insurers’ identification and treatment of vulnerable customers, as well as the adequacy of their resourcing to support claims handling and dispute resolution functions, including whether there was sufficient training and skills for front-line staff.

Using a largely qualitative dataset, gathering word-for-word statements from insurance customers, ASIC’s review was based on a snapshot of data provided by six participating insurers (AAI/Suncorp, Allianz Australia, A&G, IAG, QBE and Youi, which constitute nearly two-thirds of the general insurance market), covering 218,256 home insurance claims lodged between January and March 2022.

These claims were in relation to several severe weather events across Australia during this period, including the Queensland and NSW floods.

Of these claims, a little over one in 10 (a total of 23,759 claims) had at least one consumer complaint, with a similar number (a total of 21,550 claims) having at least one potential or actual Code of Practice violation.

ASIC wrote that it observed “consistent frustration with [the] timeliness and quality of communication, with consumers feeling neglected, frustrated and overwhelmed.”

“All insurers demonstrated instances of poor communication – for example, failing to update consumers in a timely way. This was most prevalent in building claims where we observed poor project management and a lack of oversight of third parties.”

Transparent communications and efficient project management by insurers, the regulator noted, were “central” to a positive consumer experience.

“Consumers understood that assessors were not always able to provide a decision immediately, but they appreciated open communication from assessors and insurers, and receiving the assessment report for transparency.”

Further, it was not always clear when a decision on a claim was made or communicated.

“We observed that claims were often assessed and then either fulfilled (partially or fully) or declined without the insurer communicating to the consumer what had actually been approved or declined.”

The regulator did, however, acknowledge consumers’ largely positive responses to the claims lodgement process, noting that both phone services and online platforms offered, in the main, sufficient processes to capture required data to lodge and assess a claim.

On complaints handling, ASIC wrote that insurers at times failed to demonstrate a genuine attempt to understand and address the consumer’s concerns, in one case observing that a call centre representative had recommended that a dissatisfied customer “hang up and call back” after they had expressed a wish to talk to another staff member.

While the regulator did acknowledge inconsistencies in the self-reporting of code breaches by the six insurers (with one insurance reporting a code breach or potential code breach in one in five claims, while another reported fewer than one in 1,000 claims), it did consistently observe that the overwhelming majority of breaches (55 per cent) were due to insurers failing to provide claims progress updates to consumers within 20 business days (as required under point 70 of the Code).

Another 20 per cent reported that consumers had no response to claims inquiries within 10 days (required under point 71 of the code), while another 19 per cent had failed to provide a claims acceptance/denial decision within 10 business (required under point 76 of the code).

On the management of third parties, ASIC found “very few insurers” had appointed an internal project manager; as a result, complex assessment and repair processes often had to be managed by the consumer, it said.

Further, rather than handling correspondence themselves, communication was often delegated to third parties (e.g. assessors and repairers) with limited coordination between these outsourced service providers, the consumer, and the insurer.

“As a result, the insurer was ‘out of the loop’, unaware of delays and tradespeople being booked in an illogical order,” ASIC wrote.

ASIC deputy chair Karen Chester noted that all five identified areas for improvement “are within the insurers’ control”.

“Improving claims handling practices and resourcing will make an immediate and positive difference to consumers when it matters most – making a claim on their home insurance,’ Chester said.

She added: “An insurance claim doesn’t have to be handled perfectly, but it must be handled well. Our claims handling review found good practices and poor practices across all six insurers.”