The Australian Competition and Consumer Commission (ACCC) plans to reject the Insurance Council of Australia's (ICA) bid for home insurers to adopt common definitions of "taking reasonable steps to maintain" and "wear and tear." The regulator's draft determination issued Wednesday is a major blow to one of the industry's flagship consumer reform projects.
The ACCC said it was not satisfied the plan would deliver a public benefit. It also found the proposal was likely to cause at least some public detriment by reducing competition between insurers. Interested parties have until August 20 to lodge submissions, or request a pre-decision conference, before the ACCC issues a final determination.
For brokers, the immediate effect is that the existing patchwork of maintenance and wear and tear wording stays in place - the same inconsistency that drives a substantial share of home claim disputes.
The Australian Consumers Insurance Lobby (ACIL) welcomed the outcome, telling Insurance Business it backs standardised definitions in principle but not an industry-run process. Chair Tyrone Shandiman said the ICA's role as insurers' advocate disqualified it from the task.
"It should not be responsible for defining policy terms that ultimately determine whether consumers receive cover," Shandiman said.
The regulator identified multiple deficiencies in the proposed wording. It said new terms introduced by the definitions, including "good working order", "reasonable" and the distinction between "worn" and "deteriorating," were themselves undefined and open to broad interpretation by insurers.
The ACCC also warned the wear and tear examples could deter valid claims. Several listed items, including rust, rising damp, corrosion, rot and deteriorating fencing, can result from an insured event rather than gradual deterioration, raising the prospect that policyholders would assume damage was excluded and never lodge a claim.
The regulator also questioned whether the definitions would impose effectively unlimited maintenance obligations, extending to minor or cosmetic issues and whether insurers would treat them as a claims-assessment checklist. Because adoption would be voluntary, the ACCC said the scope and consistency of take-up remained uncertain and noted the ICA had not substantiated its claim that participants would represent more than 90% of the retail home insurance market.
On the competition side, the ACCC concluded that standardising policy terms across a large share of the market created a real chance of some lessening of competition. It flagged a broader concern: that agreement on these definitions could influence claims handling, claims decisions and pricing - areas where insurers would otherwise differentiate.
The ICA sought five-year authorisation covering itself and current and future members writing home insurance. Twenty-four of its 49 members issue home and contents policies, with expected participants including IAG, Suncorp, QBE Insurance, Allianz Australia, Youi, RACQ, RACT and Defence Service Homes Insurance.
Alongside the two definitions, the application proposed a two-part education campaign: an ICA-led programme supplying messaging to participating insurers, plus insurer-to-consumer communications bound by minimum content standards covering maintenance expectations, wear and tear meaning, and the risk of claim denial.
The ICA's case rested on a striking figure. It submitted that denials attributable to maintenance and wear and tear exclusions rose from 9.2% of all claim denials in 2020 to 51% in 2023, while average monthly new claims stayed relatively steady. That echoes the General Insurance Code Governance Committee's (CGC's) July 2023 finding that 55% of denied home claims relied on those exclusions and that nearly half of denials were overturned on internal review.
The ICA told the ACCC it had consulted the Australian Securities and Investments Commission (ASIC), the Australian Financial Complaints Authority (AFCA) and Treasury, none of which raised concerns.
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However, consumer groups like ACIL objected to an insurance industry-led process and called on the regulator to take control.
"The Insurance Council no longer has the credibility required to lead reforms of this significance," said Shandiman, pointing to the General Insurance Code of Practice as evidence that industry-led standard setting erodes consumer confidence. ACIL wants ASIC or Treasury to lead the work, with insurers consulted rather than in control.
The ICA is not out of options. The ACCC set out specific evidence that would assist it - including comparisons between the proposed definitions and current policy wording and data on overturned denials - leaving room for the applicant to strengthen its case before the final determination.
