Insurers warned against offering dodgy cash settlements
Jacob Shteyman |
Home insurers could be duping vulnerable Australians out of tens of thousands of dollars by low-balling them with inadequate cash payouts instead of organising repairs.
In at least 63 per cent of the home insurance claims it reviewed, financial regulator the Australian Securities and Investments Commission (ASIC) found insurers offered full or partial cash settlements.
More than half of the cash settlement offers were based on a single quote, often from preferred suppliers that did not reflect the true price customers faced when organising repairs themselves.
“The easy option for insurers can be the expensive one for home owners,” ASIC commissioner Alan Kirkland said.
“If the amount falls short, consumers can be left shouldering the cost of repairs and paying the difference out of their own pocket.
“If home owners are taking on more work, more risk and potentially more costs, home insurers need to take this into account when offering to settle with cash.”
Leon Wuttrich, a 72-year-old pensioner from Cardwell in North Queensland, experienced difficulty receiving a fair quote when his home was damaged in the February 2025 floods.
The insurer’s preferred builder offered a quote of $127,000 to fix the extensive damage to his house.
Sceptical the repairs could be completed at that cost, Mr Wuttrich – a former builder himself – got two other quotes from separate contractors, who priced the fix at $305,000 and $327,000.
“They just said, ‘yeah, no, we’re not paying it – we we don’t believe that they are accurate quotes’,” Mr Wuttrich told AAP.
He eventually received a $318,000 settlement from the insurer after the watchdog intervened.
While Mr Wuttrich secured a fair payout, customers unable to push back against insurers because of language difficulties or disabilities could be less fortunate.
Four out of five insurers ASIC reviewed failed to consistently apply policies for dealing with vulnerable customers, Mr Kirkland said.
“It shouldn’t be on consumers to have to do the work that insurers should be doing,” he said.
ASIC also found settlement amounts could increase significantly after a customer lodged a complaint, raising concerns about the fairness of their initial offers.
The regulator called on insurers to improve how they communicate cash settlement offers, clearly detail customers’ options and ensure settlement offers reflect the true value of repairs.
An Insurance Council of Australia spokesperson said cash settlements could offer greater flexibility and speed, allowing customers to prioritise urgent fixes and decide how they wanted to spend the funds.
“Insurers are committed to fair customer outcomes and recognise that customers must have clear information on cash settlements,” the spokesperson said.
AAP