Cash settlements on home insurance claims leaving vulnerable Australians short-changed, Asic says

Home insurers in Australia are predominantly opting for cash settlements when processing claims, potentially leaving vulnerable homeowners underprepared for the full cost of repairing cyclone-damaged properties, according to a report by the Australian Securities and Investments Commission (Asic). The findings highlight concerns over the fairness of current practices, particularly for individuals who may struggle to manage unexpected expenses. The report, released on Monday, examined a sample of home building insurance claims following Cyclone Jasper, which struck far north Queensland in December 2023. Asic focused on major players in the home insurance sector, including Insurance Australia Group (IAG), AAI, QBE Insurance, Allianz Australia, and Sure Insurance. It discovered that over 63% of final claims were resolved through cash payments rather than full rebuilds or managed repairs. Among these insurers, IAG and Allianz used cash settlements in more than 80% of cases. Asic commissioner Alan Kirkland emphasized that while insurers claim to favor managed repairs, the data suggests otherwise. He warned that the reliance on cash settlements often results in homeowners facing additional financial burdens. In some instances, insurers accepted quotes from their preferred builders, which included substantial discounts. These lower figures were then passed directly to homeowners, leading to situations where the quoted price proved insufficient for necessary repairs. One example cited in the report involved an insurer's preferred builder offering a quote at a 40% discount. While the insurer paid out the reduced amount, the builder later declined to perform the work for that sum. This discrepancy highlights the potential mismatch between the cash offer and the actual repair costs. Additionally, the report noted that although some insurers attempted to adjust for the discount, there was no consistent system in place to ensure fair compensation for homeowners. Consumers were often not adequately informed about the implications of choosing cash settlements. Only three of the five insurers explicitly informed policyholders of their right to reconsider their decision after accepting a cash offer, though two later began providing clearer guidance. Furthermore, four of the five insurers lacked robust processes for identifying and supporting vulnerable customers, raising questions about how effectively they address the needs of those most affected by such decisions. The rising costs of construction and repairs have significantly impacted home insurance premiums, with Finity reporting a 51% increase in home insurance costs over five years ending in October 2025. The Australian Bureau of Statistics noted that insurance prices rose 4.2% in the year to July, surpassing general inflation. Asic previously urged car owners to challenge their insurers and seek better deals, citing similar issues with premium justification. Complaints regarding home building insurance have surged back to levels last seen in 2022-23, attributed largely to delays in claim processing. The Insurance Council of Australia has linked the increased frequency of extreme weather events to a near tripling of total costs for insurers. A 2025 report estimated that extreme weather alone generated $4.5 billion in claims annually.