Brokers reading the corporate regulator's cash settlement review for evidence that the settlement method itself is failing clients may be looking at the wrong finding. Laura Meyer (pictured), founder and director of MeyerInsure in Ballarat, Victoria, has spent more than a decade in insurance broking and says her clients frequently want to be cash settled. The problem she has run into is not the method - it is the number attached to it and the fact that correcting it came down to whether she pushed.
The Australian Securities and Investments Commission (ASIC) found that at least 63% of the final home insurance claims it examined included a cash settlement, across both the Cyclone Jasper catastrophe period and a normal operating period. Its report, Beyond the payout: ASIC warns home insurers to reduce cash settlement risks, reviewed claim files from five insurers and found all five had told the regulator they preferred to manage repairs rather than settle in cash.
Meyer's account of what happens on the ground complicates the assumption that the volume figure is itself the problem.
"We certainly haven't had any problematic outcomes from cash settlements," she said.
Meyer said a proportion of her clients arrive at a claim already expecting cash, usually because they want to use their own builders or service providers, or because they want additional work done at the same time. A client having a damaged wall repaired may want the bathroom remodelled while the trades are on site and a cash settlement is the simpler route to that outcome.
She said insurers supply cash settlement fact sheets, which her brokerage passes on so clients understand what they are being offered, why, and what accepting it means.
That is a materially different picture from the one the headline percentage suggests and it matters for how brokers approach the review. ASIC's concern was never that cash is the wrong answer in every case. Its concern was pricing.
In 52% of Cyclone Jasper claims, insurers relied on a single quote to make the cash offer. Insurers reported that 73% of those single-quote claims used the insurer's own preferred supplier. ASIC noted it is generally accepted practice for preferred suppliers to discount pricing for insurers in exchange for repeat business. The arithmetic consequence is that a client who accepts a figure built on a trade discount, then goes to market alone, may not be able to engage anyone at that rate.
Meyer has seen exactly that, though not recently and not at MeyerInsure. She said a couple of large claims at a previous brokerage matched the pattern ASIC has now documented, and that her team went back to the insurer, had it review other market quotes, and obtained a revised settlement.
Her explanation for why those claims came out differently is the line brokers should sit with.
"I think that was just because we pushed on those particular ones," she said.
The reason that matters is what ASIC found about the mechanism meant to prevent the shortfall in the first place. A contingency is a percentage added to a quote to compensate for the insurer's discount and for the risk the consumer takes on in managing the work. No insurer in the review had a consistent policy of applying one. One applied 10% to a single claim and not to others. One applied 20%, but only after the consumer complained. In two cases where an insurer obtained more than one quote, it settled on the lowest.
ASIC's own case study puts a number on the gap. An insurer made a cash offer based on a preferred builder's quote. The customer asked that builder whether they would carry out the repairs for the amount offered. The builder said they could not, having undercut their costs by 40% for the insurer. After the customer complained, the insurer increased the offer by 16.5%, plus a further 20% for contingencies. ASIC's assessment was that consumers should not have to lodge a complaint to get a fair outcome.
Meyer's view of the underlying dynamic is direct.
"That's an unfair advantage that they have," she said.
Read the two accounts together and the same mechanism appears twice. In ASIC's case study, the offer moved because the consumer objected. In Meyer's, it moved because the broker did. Nothing about the damage changed in either instance.
That is the broker consequence. If revision depends on advocacy, then the quality of the outcome tracks the persistence of the intermediary rather than the adequacy of the original assessment. A client without a broker, or with one who takes the first figure at face value, absorbs the difference.
ASIC has said all insurers, not only the five reviewed, will be better placed to demonstrate compliance if they base offers on prices consumers can realistically obtain in the open market. That is an expectation on the record rather than a contractual obligation, and whether it becomes one depends on where the redrafted General Insurance Code of Practice lands on cash settlements.
Until then, there are some important questions at the point of offer that brokers need to put to the insurer: how many quotes the figure rests on, whether the quoting builder is the insurer's preferred supplier and whether a contingency has been applied and at what percentage. Meyer's experience suggests the answers change when someone asks.
