Home insurers in Australia have used discounted quotes from preferred builders to calculate cash payouts, potentially leaving storm-damaged homeowners thousands of dollars short, according to the corporate regulator ASIC.
An ASIC review found that cash settlements were used in more than 63 per cent of the home insurance claims examined. In many cases, the offers were based on a single quote, often supplied by a builder or repairer in the insurer’s preferred network.
The regulator warned that discounts available to insurers may not be available to policyholders who accept a cash payment and must arrange the work themselves.
In one case, a preferred builder submitted a quote that was 40 per cent below the cost of the work. The insurer used the discounted figure to determine the cash settlement, but the builder later refused to carry out the repairs for that amount.
Home insurance cash settlements under scrutiny
ASIC examined claims arising from Cyclone Jasper, which struck far north Queensland in December 2023, involving insurers including Insurance Australia Group, AAI, QBE Insurance, Allianz Australia and Sure Insurance.
Cash settlements can allow policyholders to choose their own contractors and control when repairs are carried out. But once an offer is accepted, the homeowner is generally responsible for finding and managing builders, obtaining approvals and covering any shortfall if the work costs more than the payout.
ASIC said insurers did not have consistent systems for accounting for the discounts secured through their preferred suppliers. Some added an uplift to reflect the difference between the insurer’s price and the likely cost to the customer, but the approach varied between companies.
Insurance Australia Group and Allianz used full or partial cash settlements in more than 80 per cent of the claims reviewed, according to the findings.
ASIC also found that insurers rarely gave customers enough information to judge whether accepting cash was in their interests. Three insurers did not tell policyholders that their policies allowed them to change their minds after accepting a settlement, although two later said they had improved the information provided.
Alan Kirkland, an ASIC commissioner, said insurers needed to ensure settlement offers reflected realistic market prices rather than discounts available only to their own suppliers.
“The easy option for insurers can be the expensive one for homeowners,” he said. “If the amount falls short, consumers can be left shouldering the cost of repairs and paying the difference out of their own pocket.”
ASIC said the review had not identified breaches of legal obligations, but urged insurers to improve their oversight of builders and repairers and to explain cash settlement options in clear language.
Australian government guidance warns that a cash settlement may reflect what it costs an insurer to complete repairs, rather than what the same work will cost an individual homeowner. Policyholders can ask for the calculation to be explained, obtain their own quotes and request a review if they believe the offer is inadequate.
