Australia’s general insurers are facing increased scrutiny from regulators and consumer advocates over how they handle cash settlement offers in the wake of major flood events.
According to the Australian Financial Review’s (AFR) report, the practice of offering lump-sum payments to policyholders – rather than managing and funding repair works directly – is drawing criticism for placing undue responsibility on consumers, particularly those in vulnerable situations.
The Financial Rights Legal Centre, which provides legal advice through its Insurance Law Service, reported that a significant number of its annual enquiries relate to dissatisfaction with these settlement offers.
“We hear appalling stories about insurers pushing cash settlements onto customers who are clearly vulnerable,” said Drew MacRae, senior policy and advocacy officer at the Financial Rights Legal Centre, as reported by AFR.
Regulators have begun to address these concerns. The Australian Securities and Investments Commission (ASIC) conducted a review of insurers’ practices around cash settlements and found that key information about the offer process is often lacking or not clearly explained.
ASIC Commissioner Alan Kirkland said consumers need practical, accessible explanations – not just references to lengthy documents.
“Options should be explained in terms the customer can understand, rather than pointing to complex product disclosure statements,” he said.
Federal Financial Services Minister Stephen Jones also commented on the issue, noting that while cash settlements can be a legitimate option for some, better systems are needed to ensure customers understand the risks and responsibilities involved.
A 2023 parliamentary report into the industry’s response to the 2022 floods raised similar concerns. It found that many settlements were not adequate for reconstruction costs, leaving claimants to manage repairs during a time of significant personal stress.
The report recommended that insurers improve transparency in quotes, risks, and timelines when offering cash alternatives.
The Insurance Council of Australia (ICA) is currently reviewing the General Insurance Code of Practice, with the intention to strengthen enforceability and consumer protections. A revised code is expected to be submitted for ASIC approval in mid-2026 following public consultation.
According to AFR’s report, the ICA has acknowledged the need for better communication around settlements. A spokesperson said the industry supports many of the parliamentary recommendations but will consult widely to avoid unintended consequences.
MacRae urged that changes to the code remain enforceable.
Simultaneously, insurers are managing more than 7,000 claims resulting from flooding across the Mid North Coast and Hunter regions of New South Wales.
With access to affected areas improving, insurers have expanded their local presence to support policyholders.
A separate issue has emerged regarding insurer oversight of third-party experts.
The Australian Consumers Insurance Lobby Inc. (ACIL) has called for insurers to improve how they manage the engagement and performance of independent professionals such as engineers and assessors.
Following ASIC’s findings that insurers often rely on underqualified claims staff to interpret technical assessments, ACIL chair Tyrone Shandiman said the issue reflects broader structural problems.
ACIL warned that without substantial change, there may be renewed pressure for government-appointed assessors to ensure fairer treatment of claimants.
