ASIC previously examined insurers’ claims handling practices following the major floods of 2022 and found weaknesses across key areas. ASIC’s findings were consistent with other reviews, including the House of Representatives Standing Committee on Economics inquiry into insurers’ responses to the 2022 major floods.
Recently, ASIC went back to assess how home insurers had addressed the areas of improvement identified in Report 768 Navigating the storm: ASIC’s review of home insurance claims (REP 768), published in August 2023.
ASIC’s latest review has found that while insurers implemented programs to improve claims handling functions in recent years, and some progress has been made, there is still significant room for further improvement.
ASIC identified that without further work, there is considerable risk of ongoing consumer harm, as well as breaches of Australian financial services (AFS) licensee obligations and the General Insurance Code of Practice (Code).
Claims handling obligations
- Insurers holding an AFSL must meet the general obligations of financial service licensees under s912A(1) Corporations Act. These obligations include providing the claims handling & settling services efficiently, honestly and fairly. ASIC provides guidance on these obligations in INFO 253. ASIC can take enforcement action for a breach of obligations as an AFS Licensee. This includes cancelling or suspending the AFS Licence or imposing conditions on the licence as well as seeking civil penalties.
- Insurers who subscribe to the Code must comply with, and ensure their employees and Service Suppliers comply with the requirement to be honest, efficient, fair, transparent and timely in all dealings with customers (paragraph 21). Additional obligations arise under Parts 5 (Standards for Service Suppliers), 8 (Making a claim), 9 & 10 (customers experiencing vulnerability including financial hardship), 11 (Complaints), 12 (access to information) and 15 (Claims Investigation Standards). A breach of the Code can lead to sanctions being imposed by the Code Governance Committee with Significant breaches or serious misconduct being reported to ASIC.
- Insurers must act with the Utmost Good Faith under Section 13 of the Insurance Act
- With effect from 1 July 2025, CPS 230 applies to insurers (other than Lloyd’s underwriters). ‘Claims processing’ is deemed a critical operation under paragraph 36. Insurers must (1) take reasonable steps to minimise the likelihood and impact of disruptions to its critical operations, and; (2) identify and maintain a register of its material service providers (this includes those providing claim services) and manage the material risks associated with using these providers.
What ASIC found
ASIC’s review revealed that general insurers made progress to address the areas for improvement identified in their August 2023 report, which focused on better consumer communications, project management, handling of complaints, identification and treatment of vulnerable customers, and resourcing for dealing with claims and complaints. However, ASIC found there was inconsistent progress across the industry and still room for more work. ASIC have outlined high-level observations (see below).
High level observations
- Oversight of independent experts needs work Insurers generally have well-documented quality assurance over their builders and repairers. This includes monitoring data on key performance indicators that, if met, would drive a positive claims experience for consumers, such as timeliness, quality of repair, customer sentiment and third-party service provider conduct. Some insurers have also made steps to enhance their oversight of builders and repairers by strengthening and implementing new systems that oversee supply chain performance. By comparison, ASIC found that insurers’ oversight of independent experts (such as engineers or hydrologists) was not as developed. Quality assurance for independent expert reports generally focused on the timeliness of reports, rather than their quality or accuracy. They also relied on claims handling staff to identify errors in reports.
- Consumers deserve better information around cash settlement processes ASIC found that many cash settlement fact sheets give customers minimal information on the right to have a cash settlement reviewed, and few clearly outline what the review process is or when the right of review expires. As an example of better practice, one insurer provided additional information along with the cash settlement fact sheet, highlighting risks such as consumers having to manage their own repairs. Another insurer introduced post-claim care calls to confirm the cash settlement was adequate and the consumer was able to complete repairs as planned.
- Increased resourcing is not necessarily keeping up with demand In 2024, ASIC reviewed 11 general insurers to understand how they are supporting customers who make a complaint and complying with their regulatory obligations. In December 2024, ASIC published Report 802 Cause for complaint: Complaints handling in general insurance (REP 802). This review found a number of failures, including that insurers are failing to identify one in six customer complaints. Deficient resourcing was identified as one of the causes contributing to the failures seen in this review.
- One point of contact to handle claims is improving customer communications Most insurers have now introduced a single point of contact to handle claims, which can prevent customers having to re-tell their story multiple times. On the downside, ASIC found that controls to monitor timelines set out in the Code were often manual. While insurers have workflows that alert staff to communicate to customers in line with Code obligations, they do not always have clear processes to monitor if communication has occurred.
- Insurers are refining identification data In the latest review, ASIC found most insurers had invested in resources and skills for specialist teams handling vulnerable customers. Many had reviewed vulnerability indicators and introduced new controls. All insurers noted an increase in vulnerable consumers in their business-as-usual home and contents claims (i.e. claims not relating to natural disasters). ASIC also found procedures do not always consider vulnerability across the claim lifecycle. For example, cash settlement procedures did not always consider if a customer’s vulnerability may mean that a cash settlement is not the most appropriate outcome for that customer. For some insurers, procedures and controls did not extend to third parties representing the insurer.
- Claims handling improvement programs remain inconsistent all reviewed insurers have established programs to improve claims handling, with accountable owners for actions. However, program implementation is inconsistent. One insurer was able to provide a comprehensive response plan that went beyond the original report recommendations and sought to improve the end-to-end customer experience, as tracked by a range of key performance indicators. However, some insurers’ programs lacked clear objectives and metrics to measure success. Rather than monitoring their programs in fit-for-purpose risk management systems, there was a reliance on manual tracking, creating difficulty in monitoring and quantifying improvements.
- Audits focus more on specific claim files than broader quality assurance To ensure that progress in improving claims handling is effective, insurers should have robust controls and quality assurance in place. This would also support insurers’ obligations to have appropriate systems and processes in place to monitor and report compliance under the Code. While insurers are taking steps to improve quality assurance in their claims handling functions, they continue to report a large number of breaches of obligations under the Code. ASIC observed claim file audits across call centre and claims handling staff were often based on random sampling. These involved insurers assessing specific claim files against compliance with regulatory and Code obligations as well as their own key performance indicators. Insurers who only rely on random sampling of files are missing an opportunity to do deep dive audits on thematic topics, such as independent expert reports, analysis of overturned claim decisions, targeted quality assurance over more complex claim files, and claims made by vulnerable consumers.
Next steps for Insurers
Inurers should assess their claims handling programs end-to-end against some of the better and poorer practices ASIC have identified in their latest review and take steps to make meaningful improvements.
Despite the progress reported by insurers, their systems and processes have thankfully not been tested by an event of the same scale as the 2022 floods. Investing in improvements to the systems, processes and workforce that supports claims handling is essential for the industry to respond better to such events in the future.
Insurance claims handling remains an enforcement priority for ASIC in 2025, and evidence of significant misconduct may result in enforcement action.
Independent compliance review
The Compliance reviews that I conduct for Insurers, Underwriting Agencies and TPAs focus on financial service laws, GI Code, CPS 230 preparedness and ASIC’s reviews and reports including the findings detailed above.
Contact me Paul Muirto discuss the nature of compliance reviews that I conduct and how they can benefit your claims operations.
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