$319 million paid in compensation in ‘troubling’ breaches of insurance code of practice.

General insurers failed to honour discounts to more than 2.8 million Australian households over the past financial year as significant breaches of the industry code of practice increased for the second year in a row.

The General Insurance Code Governance Committee (CGC) estimated that $319 million was paid out in compensation to the 4.6 million Australian consumers who were affected by breaches of the code from July 2022 to June 2023, a massive 170 per cent increase in affected customers from the previous year.

Claim handling was the largest issue, with complaints about the time taken to resolve claims jumping up by 61 per cent, the fourth consecutive year this figure has risen. Failure to honour discounts, complaints handling, incorrect or missing policy documents, and incorrect premiums rounded out the top five breach issues.

Of the breaches, 86 were deemed serious enough to refer to the Australian Securities and Investment Commission (ASIC) for further investigation, while just four insurers were responsible for 60 per cent of serious breaches around honouring pricing promises.

While these insurers are not named in the CGC’s report, ASIC launched legal action against Insurance Australia Group (IAG) in August 2023, alleging that Australia’s largest general insurer had misled customers of their SGIO, SGIC, and RACV brands by raising premiums before offering “loyalty discounts” that could have discouraged customers to shop around for a better deal.

Rising premiums putting pressure on budgets

The breach figures, described as “troubling” by CGC chairr Veronique Ingram, come against a backdrop of rising insurance premiums for car and home insurance that have put serious financial strain on retirees’ budgets.

Analysis by The Australia Institute for the most recent YourLifeChoices Retirement Affordability Index revealed the cost of insurance has risen by an eye-watering 16.4 per cent in a year, putting significant pressure on homeowners who rely on the Age Pension as their main income. 

Worryingly, Matt Grudnoff, senior economist at The Australia Institute, has predicted “this is one area of inflation that is likely to continue for some time”.

While the failure to honour pricing discounts has a direct financial impact on those affected, the rise in claim handling breaches and complaints also suggests that many policy holders aren’t getting value for money from their current insurer.

Ms Ingram has expressed her concern at the time insurers are taking to resolve claims. 

“We know that insurers were dealing with greater volumes of claims but claims handling time frames are crucial for customer wellbeing. It is troubling that we saw such significant numbers of breaches in this reporting period,” Ms Ingram said.

“The issues appear to stem from insufficient resourcing, training, and technology investment by insurers, and they must do more to address these.

“Ultimately, addressing these underlying issues will lead to better outcomes for customers.”

Floods, fires and kangaroos

There appear to be a variety of reasons why claim times have proven such a challenge for insurers to get under control. The CGC report suggests that, in the case of travel insurance, airlines and airports struggled to keep up with a boom in flights following the end of the COVID-19 lockdowns.

General insurers have also faced large and complex claims arising from bushfires and floods across Australia. The devastating floods in Lismore in 2022 were the fourth most expensive global disaster for insurers around the world that year, while a federal inquiry is now underway into home insurance flood claims handling in NSW, Tasmania, Queensland and Victoria.

There’s also been a rise in car accidents involving animals, largely kangaroos, with insurer RACQ reporting a 25 per cent increase in animal-related claims in the past year in Queensland, with significant rises in Brisbane’s north and Ipswich.

The CGC also noted that insurers need to improve how they collect and analyse claim data, after a snapshot examination of overturned claims decisions found that over half were originally denied as the insurers had attributed the claim to “wear and tear”.

Have you made a complaint against your insurer recently? Has a claim taken longer than you think is reasonable to resolve? Let us know in the comments section below.

Also read: Home insurance keeps going up: what can you do?