ob体育 recently completed a project reviewing insurance claims handling outcomes for consumers affected by the 2019-20 鈥楤lack Summer鈥� bushfires.听
The fires were declared a catastrophe (CAT195) by the Insurance Council of Australia (ICA) on 8 November 2019. During the 2019-2020 fires thirty-three people died, more than five and a half million hectares of bushland was destroyed and almost 2,500 homes were destroyed or damaged.
The review was also completed in advance of insurance claims handling legislative reforms commencing from 1 January 2022.听
ob体育 Deputy Chair Karen Chester said, 鈥榃ith summer upon us, we want to remind all insurers they now must manage claims efficiently, honestly and fairly. To consumers, the real value of an insurance policy is tested when they need to claim.听 It is important that claims are resolved quickly, that the process is consumer-centric, that repairs and rebuilds are timely, and that consumers are supported as well as possible after a disaster.鈥�
The ob体育 review involved collecting and monitoring insurers鈥� claims handling data over a 15 month period across 12 insurers representing over 90% of the Australian home insurance market.听 The detailed findings have been shared with the insurers.听
ob体育 Deputy Chair, Karen Chester said, 鈥榦b体育鈥檚 review provided valuable insights on how well insurers performed on key consumer outcomes during the 鈥楤lack Summer鈥� bushfires.听 We have shared our detailed findings with the insurers ahead of the upcoming disaster season. There are some positive findings from the insurers鈥� data and in the action taken by individual insurers.听 While we identified areas for improvement, overall outcomes across the 8,801 claims revealed improved claims handling practices by insurers.鈥櫬�
Across the 8,801 claims reviewed, ob体育 found:聽
- 99% of claims determined by insurers were approved in-full or in-part
- 88% of claimants accepted the insurer鈥檚 decision within four months of lodging a claim, and
- 93% of claims are closed, 5% withdrawn and 2% open, as at September 2021.
Nearly all claimants were afforded a temporary accommodation benefit (typically 1 year) under their policy. However, insurers reported that almost 5% of claimants had used up all of their benefit by the end of January 2021. One insurer paid a benefit at the outset of the claims assessment process and one insurer made additional payments after a benefit was exhausted. These consumer-centric practices are encouraging but also suggest that, at least for some policyholders, the cover may have been insufficient to meet consumers鈥� needs.
Insurers also reported that 21% of policies had debris removal as part of the sum insured rather than as an additional benefit.听 Where it is part of the sum insured there are concerns this may contribute to underinsurance. At least one insurer is working towards a consistent additional benefit across its brands.
ob体育鈥檚 review also found some insurers needed to make improvements to the quality, accuracy and reliability of claims information recorded in their systems. Insurers鈥� data had quality issues including some data missing where ob体育 would expect it to be reported (for example, 97 claims were reported with a date of decision, but no decision was reported).
鈥榃e call on insurers to invest in better systems, processes and internal controls. This will help ensure good consumer outcomes are achieved for claimants. Measuring consumer outcomes 鈥� and doing so well 鈥� is today鈥檚 must鈥慼ave for the insurance industry. Products must not only be fit for purpose to meet consumers鈥� needs, but insurers also need to record accurate data to know how they are performing when handling claims,鈥� said Ms Chester.
During ob体育鈥檚 engagement with the industry for the review, a number of good practices were identified, including:聽
- Responding swiftly to the event, tracking bushfires and proactively contacting customers in affected areas, encouraging them to lodge a claim or even evacuate
- Paying the maximum temporary accommodation benefit at the outset of claims assessed as a 鈥榯otal loss鈥�, to provide certainty to those claimants
- Making product design changes to broaden policy coverage for fire damage, and effectively making this change retrospectively, and
- In advance of the upcoming disaster season, undertaking simulation exercises to stress-test a response to simultaneous disasters, including how insurers will respond in a pandemic to allow for assessment and emergency repairs to property.
ob体育 encourages all insurers to adopt these practices more broadly.
Disasters consistently cause mass claim events that test an insurer鈥檚 ability to manage their customers鈥� claims and expectations. The COVID-19 pandemic has created additional challenges for customers and insurers alike. With the reforms to claims handling commencing from January 2022, ob体育 will continue to work with the industry to set clear expectations and will be monitoring insurers to ensure claims are handled in a manner that is timely, accurate and transparent.
Background
In January 2020, ob体育 published a media release (see 20-006MR) encouraging insurers to ensure that claims arising from the 鈥楤lack Summer鈥� bushfires are handled efficiently and fairly. Information for consumers on what to do after a disaster was made available on ob体育鈥檚 .
In December 2020, ob体育 wrote a letter to insurers setting out actions they should consider to ensure that they are better placed to meet their duty of utmost good faith in the context of the upcoming summer disaster season. The letter was informed by consumer research and set out an overview of research findings.
During 2020-21, ob体育 engaged with 12 insurers and collected claim-level data across 8,801 claims arising from the 鈥楤lack Summer鈥� bushfires. 12 insurers were selected on the basis that they had each received at least fifty CAT195 claims, limited to residential property.
Following a review of the data, ob体育 engaged further with the insurers to obtain an update on the status of claims that were reported as 鈥榦pen鈥� at the time of our initial data collection (as at January 2021) and to understand why some claims remained open (as at September 2021).