Key takeaways from ASIC, APRA and the ICA appearing at the Parliamentary Inquiry on insurers’ response to the 2022 floods

ASIC, APRA and the ICA have appeared before the House of Representatives Standing Committee on Economics to give evidence through their respective submissions for the inquiry into insurers’ responses to 2022 major flood claims. 

Key takeaways from ASIC’s appearance 

Mr Nathan Bourne, Senior Executive Leader, Credit, Banking and General Insurance, and Mr Alan Kirkland, Commissioner, represented ASIC. 

Mr Kirkland noted two major pieces of work undertaken by ASIC. Firstly, Report 765: When the price is not right: making good on insurance pricing promises, which revealed “systemic failures by a number of insurers” to make good on their pricing promises to their customers. As a result of ASIC’s intervention, 11 general insurers, comprising 68% of the overall market, were asked to adequately compensate their customers for broken promises. 

Secondly, Mr Kirkland also highlighted ASIC’s claims-handling review report, Navigating the storm: ASIC's review of home insurance claims, which looked at the claims-handling processes of six general insurers. The scope of this report covered a number of claims that the inquiry is specifically examining around the 2022 flood claims. This report found weaknesses across “five key areas”. These include:  

  • communication with consumers about decisions, delays and complications;  
  • project management and oversight of third parties;
  • recognition and management of complaints;  
  • identifying vulnerable customers and responding to their particular needs; and
  • resourcing of claims handling and dispute resolution functions. 

Mr Kirkland claimed that there were “deeper, longer-standing issues with the industry's processes, practices and resourcing” which needed to be addressed. One of these issues is around the level of resourcing around dispute resolution. ASIC claimed that there was significant under-resourcing when it comes to dispute resolution, and this issue was not being taken seriously enough by the insurers. 

He termed the overall quality of the industry's response to the 2022 floods as “disappointing”. 

Key takeaways from APRA’s appearance 

Mrs Suzanne Smith, Executive Board Member, and Mr Jonathan Wood, Head, Insurance Risk, represented APRA.  

In APRA’s opening statement, Mrs Smith noted the myriad factors that were contributing to rising premiums. These factors include increasing frequency and costs of natural disasters, a change in reinsurance appetite when it comes to natural disasters, supply chain issues and skills shortages.  

Mrs Smith highlighted that one way to lowering premiums was by lowering risk, and reiterated APRA’s commitment to lowering risk through working with government, insurers and peer regulators through programs such as Hazards Insurance Partnership. APRA also supported the findings of ASIC’s claims-handling report. 

The inquiry was also particularly interested in finding out about the impact rising global reinsurance costs and whether Australia is being reassessed in terms of risk by some reinsurers.  

APRA acknowledged that reinsurance costs were indeed increasing globally, and based on the discussions they’ve had, reinsurers are “reassessing the risk of Australia as a market”. 

Key takeaways from ICA’s appearance 

Andrew Hall, CEO, and Kylie Macfarlane, COO, represented the ICA at the inquiry.  

Mr Hall highlighted the findings of the independent review of insurer performance around the 2022 floods in South-East Queensland and New South Wales conducted by Deloitte last year.  

The report titled, The new benchmark for catastrophe preparedness in Australia, highlighted that insurance claims processes were “tested at a scale never seen before”. Similar to the findings of ASIC’s claims-handling report, this Deloitte report found that there were issues in insurers’ claims and complaint handling responses, timely communications, better identifying of vulnerability, resourcing internally and externally, processes and technology, and governance.   

There were seven recommendations made in the report, and Mr Hall noted that the industry had accepted all seven recommendations, with progress being made regarding how these recommendations were being implemented.  

Mr Hall highlighted the danger of a growing protection gap, with demand for insurance outstripping supply, noting that “closing the protection gap is in everyone’s interest”.  

He acknowledged that this was a complex issue, requiring all levers of government and the insurance industry to work together to come up with a long-term policy solution.  

The Terms of Reference of the ongoing inquiry specify that findings from other reports such as Deloitte’s external review of insurers’ responses to the 2022 floods, as well as ASIC’s claims-handling review will be taken into consideration.