Brokers advocating on home claims now have a documented regulatory benchmark to challenge inadequate cash offers. The Australian Securities and Investments Commission (ASIC) has found that at least 63% of final home insurance claims in its review included a cash settlement - and that more than half of the offers examined were priced from a single quote the insurer had sourced itself.
The review published today, Beyond the payout: ASIC warns home insurers to reduce cash settlement risks, examined claims arising from Cyclone Jasper - catastrophe code CAT232 - which caused significant damage in Far North Queensland in December 2023, along with insurers' broader practices since. ASIC collected data and reviewed policies, procedures, training materials and a sample of claim files from Insurance Australia Group (IAG), AAI Limited [the Suncorp Group entity underwriting AAMI, GIO, Suncorp Insurance and Vero], QBE Insurance Australia (QBE), Allianz Australia and Sure Insurance.
The core finding is a pricing one. In 52% of CAT232 claims, insurers relied on a single quote to make the cash offer. Insurers also reported that 73% of those single-quote claims used the insurer's preferred supplier. ASIC notes it is generally accepted practice for preferred suppliers to discount pricing for insurers in exchange for repeat business - which means a client who accepts that figure and then goes to market alone may not be able to engage anyone at the same rate.
The 63% rate held across both the catastrophe period and a normal operating period, and two of the five insurers used full or partial cash settlements in more than 80% of CAT232 claims. ASIC does not identify which two.
"The easy option for insurers can be the expensive one for homeowners. If the amount falls short, consumers can be left shouldering the cost of repairs and paying the difference out of their own pocket," ASIC commissioner Alan Kirkland (pictured) said.
ASIC's remedy is a contingency – a percentage added to quotes to compensate for insurer discounts and for the risk the consumer takes on. No insurer in the review had a consistent policy of applying one. One applied a 10% contingency to a single claim but not to others; another applied 20% only after the consumer complained. In two instances where an insurer obtained more than one quote, it settled on the lowest. Only one insurer reported using a cost-plus pricing model.
The case study is the one to quote to a client. A consumer asked the preferred builder whether they would do the repairs for the settled amount; the builder said they could not, having undercut their costs by 40% for the insurer. After a complaint, the insurer lifted the offer by 16.5% plus a further 20% for contingencies. ASIC's assessment is blunt – consumers should not have to lodge a complaint to get a fair outcome.
Maintenance exclusions were the underlying reason for a quarter of CAT232 cash settlements, and at claim level, half the files reviewed involved a cash settlement because the insurer assessed the property as inadequately maintained. Four of the five insurers applied their vulnerable consumer policies inconsistently. Three had policies permitting consumers to change their mind after accepting cash, but did not communicate that at the time. Only one insurer could readily extract data on why a claim was cash settled.
ASIC says all insurers - not only those reviewed - will be better placed to demonstrate compliance if they base offers on prices consumers can realistically obtain in the open market, support consumers where damage is partly excluded, explain review and change-of-mind rights, identify vulnerable consumers properly including through third-party suppliers and collect portfolio-level cash settlement data.
ASIC also links its conclusions to the House of Representatives Standing Committee on Economics report Flood failure to future fairness, published in October 2024, which called for greater clarity for consumers on cash settlements.
For brokers, the practical shift is timing. Cash settlement adequacy is now a documented compliance expectation with named better and poorer practices attached - worth raising at the point of offer, not after the client has signed.
IB is reaching out to insurers for comment.
