- Introduction
- Insurers failed too many people in the wake of the 2022 major floods, which devastated communities across Queensland, New South Wales, Victoria, Tasmania and elsewhere. Too many families and individuals were left behind. Too many people experienced unnecessary delays in getting their lives back to normal. During its visits to communities affected by the 2022 floods, the Committee spoke to many people for whom these issues persist to this day. Many still have not been able to move back into their homes, years after the original events.
- The evidence received by the Committee shows that many people experienced delays in communication, treatment that lacked empathy, inefficient document handling, poor claims management and lengthy, legalistic disputes. Cash settlements were often inadequate, leaving individuals and families with the burden of project management and the risk of cost escalation during a period of intense and sustained vulnerability. Cash settlements were sometimes accepted due to exhaustion and frustration on the part of the policyholder. Some people, who turned to their insurer in their darkest hour after paying premiums for years, felt that they became engaged in an adversarial situation with a company meant to be on their side. Some said they felt that they were forced to defend themselves when submitting claims documentation.
- Where disputes arose, assessment decisions often relied on highly technical questions of hydrology or building maintenance. In addition to being complex, these disputes typically involved experts commissioned by the insurers, whose reports were of variable quality and clarity. Dispute resolution itself often led to lengthy delays and disruption. Many consumers responded to insurers’ poor dispute resolution processes by bringing complaints to the Australian Financial Complaints Authority (AFCA). AFCA is now dealing with a growing workload across the insurance sector, some of which arose from the 2022 floods and much of which arose from other insurance lines where dispute resolution was impacted by the increased resourcing deployed to flood claims. Together, this is placing AFCA’s systems under strain. Insurers’ internal dispute resolution systems need to perform better and resolve more cases efficiently and fairly.
- During the course of the inquiry, it also became clear that the regulatory framework needs reform. This should start with a wholesale strengthening of the General Insurance Code of Practice. In addition, regulators require greater powers and need to use them. In particular, greater transparency will be achieved by requiring insurers to report standardised measures to regulators and for that data to be published by insurer and brand.
- These findings point to the need for systemic changes to the way insurers operate during natural disasters and a significant strengthening of regulatory powers and oversight.
- This inquiry was tasked with inquiring into insurers’ responses to the major flood events that occurred in 2022 across south-east Queensland, New South Wales, Victoria, Tasmania and elsewhere. These flood events were historically significant in their scale and impact, causing widespread property damage, lengthy periods of displacement, injury, as well as loss of life – with 32 individuals losing their lives due to the floods. For individuals and communities affected, the impact was not merely financial, but deeply personal and emotional too. The geographic spread of the floods covered a substantial area of eastern Australia. Across the four flood events examined by the Committee, over 300,000 insurance claims were lodged totalling almost $7.4 billion. This total number of claims was unprecedented and placed great strain on insurers’ claims handling systems. Insurers found themselves ill-prepared for the overwhelming surge of claims.
- Helping policyholders in the aftermath of natural disasters is core business for insurers. While predicting the timing and location of natural disasters is challenging and warnings are often provided with short notice, the fact that there will be disasters in the future is known to insurers. Three of the four events in 2022 involved claims numbers within the realm of what insurers should be able to handle by flexing their systems. Insurers’ systems and planning should have coped far better with these events. It is worth acknowledging that the February and March 2022 floods in south-east Queensland and northern New South Wales (the insurance event known as CAT 221) generated six times the number of claims received for the average ‘catastrophe’ event that occurred between 2016 and 2022. CAT 221 was in a different category to the other three events examined by the Committee. The difficulties associated with claims processing during CAT 221 were exacerbated by post-COVID shortages in labour, skills and materials, and increased competition for resources, particularly in the construction industry.
- Insurance plays an important role in the recovery of individuals, families, businesses and communities following a natural disaster. Private insurance plays a key role in the overall management of risk in society, alongside publicly funded programs at all three levels of government. It is of critical importance that private insurance markets function well and that insurance is competitively priced and comprehensive in cover, and that claims management processes are efficient and fair.
- Since the 2022 major floods, some trends have arisen or continued that threaten the functioning of parts of this risk management system. Insurers and reinsurers have reassessed their exposure to flood risk to incorporate projected increases in the frequency and severity of floods resulting from warmer global temperatures. Several insurers have reduced their offerings to high-risk households and businesses or increased premiums. Consequently, many Australians living in flood-prone areas are opting out of flood cover because it is unaffordable or are finding insurance to be altogether unavailable. It is predicted that 1 in 25 homes in Australia will be effectively uninsurable by 2030 due to the increased risk of extreme weather events resulting from climate change. The proportion of households paying at least four weeks of their gross income on home and contents insurance annually has increased from 12 per cent in 2023 to 15 per cent in 2024. These trends suggest that government will need to take a more interventionist approach to ensure that all households have access to all-peril, affordable cover.
- The 2022 major flood events exposed failures in insurers’ claims and complaint handling processes, as well as the challenges Australians are facing in accessing and affording insurance. For future flood events and other extreme weather catastrophes, action is required to ensure a more efficient and supportive claims experience which does not further compound victims’ trauma. As Hon Stephen Jones MP, Assistant Treasurer and Minister for Financial Services, told the House when referring the inquiry:
Some losses can't ever be replaced, but when people are suffering, when things have fallen apart, they're entitled to expect that the recovery won't be made harder than it needs to be. They're entitled to a process that is as simple, efficient and compassionate as possible.
Scope and conduct of the inquiry
1.11Following the reference from the House of Representatives on 7 August 2023, the House of Representatives Standing Committee on Economics commenced its inquiry into insurers’ responses to 2022 major floods claims. The floods covered by the inquiry include the south‑east Queensland and northern New South Wales (NSW) floods of February and March 2022, the Hunter and greater Sydney floods of July 2022, the Victorian, NSW and Tasmanian floods of October 2022, and the central west NSW floods of November and December 2022. These floods will be referred to throughout this report as the ‘major floods’.
1.12The Terms of Reference required the Committee to examine the challenges faced by insurers in responding to a record number of claims. Paramount to the inquiry was the experience of policyholders before, during and after making a claim, including timeframes and obstacles to resolving claims, as well as insurers’ communications with policyholders throughout the claims process.
1.13As part of its consideration of the full claims journey, the inquiry was to examine insurers’ internal dispute resolution processes. The inquiry was to also have regard for the affordability of insurance coverage, the impact of land use planning decisions and disaster mitigation efforts on the availability and affordability of insurance and insurer preparedness for future flood events. Matters relating to the emergency response for the major floods were out of scope for this inquiry.
1.14Over the course of the inquiry, the Committee received 108 submissions, as well as 60 supplementary submissions, from a range of stakeholders, including Australia’s eight largest insurers, regulators, key departments and agencies, local councils, private individuals, and consumer advocacy groups. Other publications, documents and supplementary material were received as exhibits.
1.15A list of submissions and exhibits is at Appendix A. The Committee also received more than 90 pieces of correspondence from private individuals and other interested parties.
1.16The Committee conducted 23 public hearings between January and July 2024, including several hearings in locations affected by the major floods. This included hearings in Lismore, the Hawkesbury region, Eugowra, Molong and Sydney in NSW, Rochester, Heathcote and Melbourne in Victoria, Northern Tasmania, and Logan and Caboolture in Queensland, as well as Cairns and Townsville which were affected by flooding caused by Cyclone Jasper. The examination of the events that occurred in Cairns and Townsville provided a useful benchmark to determine whether the insurance industry’s performance had improved in the two years following the first flooding of 2022.
1.17The list of witnesses who appeared at the Committee’s hearings is at Appendix B. Transcripts of the proceedings are available on the inquiry website and video and audio recordings are available on ParlView.
1.18The Committee also conducted several site visits to people’s homes, schools, factories, and hotels to see the flood damage first-hand, mitigation measures put in place to counter future floods, and to better understand the causes of disputes related to policy coverage, exclusions and assessment reports.
1.19The Committee also invited people to share their experiences with their insurer through an online survey. Over 650 affected individuals provided feedback on their experience, which have been included throughout this report. A full summary of survey responses is at Appendix C.
Context for the inquiry
1.20On 19 July 2023, the Australian Government announced its intention to refer an inquiry into insurers’ responses to the 2022 floods to a parliamentary committee.
1.21When moving the reference for the inquiry on 7 August, Hon Stephen Jones MP, Assistant Treasurer and Minister for Financial Services, told the House of the unsatisfactory experiences many policyholders had raised about the claims process with their insurer following a flood in 2022. There were also concerns about the impact these disasters were having on low‑income earners who are most likely to struggle to afford either mitigation work or insurance. Mr Jones requested the Committee hear from affected communities and find a way to improve people’s experiences with insurance claims following natural disaster events and to look into how to deal with insurance affordability issues.
1.22This inquiry is one component of broader work being conducted to understand and reduce natural hazard risk. The devastation brought about by the floods of 2022 and other recent natural disasters have spurred the Parliament, multiple levels of government and industry into reviewing current practices, investing in disaster risk mitigation, and initiatives to improve outcomes for households and communities when a disaster occurs. Some of these recent reviews and actions are outlined below.
Other reviews and reports
1.23Two reviews of insurers’ responses to the 2022 major floods were released in 2023. Both of these reviews occurred, or were being finalised, before this inquiry was referred to the Committee. They are identified in the Terms of Reference.
1.24In August 2023, the Australian Securities and Investments Commission (ASIC) released Report 768 Navigating the storm: ASIC’s review of home insurance claims, which was conducted to better understand the consumer experience in home insurance claims and to assess the state of claims handling after the introduction of a new regulatory regime. The report reviewed insurers’ compliance with their new regulatory obligations across the typical stages of the claims process when insurers were facing a high volume of major floods claims. ASIC observed good and bad practices across insurers and identified several areas for improvement, including better communication practices with customers, the handling of complaints, the treatment of vulnerable customers, resourcing, and project management.
1.25In October 2023, Deloitte released its report into the insurance industry’s response which was commissioned by the Insurance Council of Australia. The report was limited to insurers’ response to CAT221. Deloitte found that the scale and complexity of CAT221 challenged insurers’ response and exposed weaknesses in insurer’ claims and complaints handling processes. It identified critical areas for improvement, including in relation to catastrophe planning, claims and complaints handling, and communication with policyholders.
1.26In the last two years, the Actuaries Institute has released three reports on the affordability of home insurance: the Home Insurance Affordability Update (2023) examined the affordability of home insurance in the context of natural perils and the Home Insurance Affordability and Home Loans at Risk (2024) report provided updated information on household stress related to insurance premium growth, while the accompanying Funding for Flood Costs (2023) report looked at the affordability and availability of flood insurance.
1.27Several inquiries have been conducted into the emergency response to the major flood events of 2022 including reviews commissioned by the NSW, Victorian and Queensland state governments, which have primary responsibility for emergency management in their jurisdictions. These inquiries have focused on the state’s preparedness for the floods and the immediate response of emergency services and other supporting agencies. The findings and recommendations from these reviews have focused on improving emergency management protocols and systems, rescue capabilities, and public works flood mitigation infrastructure.
1.28Two Senate select committees have also covered matters related to this inquiry: the Senate Select Committee on Australia’s Disaster Resilience inquired into natural disaster preparedness and response and recovery workforce models. In its Interim Report, it recommended that this inquiry examine insurance companies’ handling of flood payouts, and delivered its final report in August 2024. The Senate Select Committee on the Impact of Climate Risk on Insurance Premiums and Availability was established in May 2024 to examine insurance availability and affordability relating to climate-driven disasters.
1.29This inquiry has also taken place alongside the Independent Review of the 2020 General Insurance Code of Practice (the Code Review). The General Insurance Code of Practice (the Code) sets out the minimum standards of service and conduct that general insurers must meet in their dealings with customers and is typically reviewed every three years. In light of this inquiry, the Code Review is being conducted in two phases. The review panel released initial findings and recommendations covering topics unrelated to floods on 6 September 2024, with further findings on topics relevant to floods expected to be released in mid-2025.
1.30This inquiry has considered the findings of these reports, in particular, the ASIC review and Deloitte report (as required by the Terms of Reference), which have provided timely, valuable insights into insurers’ practices during the period under inquiry.
1.31The considerable number of submissions, survey responses and evidence from public hearings the Committee has received and considered throughout this inquiry has built a robust foundation of evidence from which the Committee has made its recommendations.
Government and industry initiatives
1.32In the October 2022-23 Budget, the Australian Government committed to a package of measures to strengthen Australia’s disaster readiness and build resilience. Among other initiatives, the Government launched the Disaster Ready Fund (DRF), which committed $1 billion over 5 years to support resilience projects that reduce the physical and social impacts of disasters on communities. The Government also established the Hazards Insurance Partnership (HIP), a collaborative partnership between government and the private sector, including the insurance industry on risk reduction, insurance affordability, and the development of a national knowledge base of mitigations to reduce vulnerability to natural disasters.
1.33Earlier this year, the Australian Government announced that an Affordability and Natural Hazard Risk Reduction Taskforce, led by the Department of Prime Minister and Cabinet, would develop an integrated, cross-government approach to minimising the impacts of disasters on the community and help address insurance costs driven by more frequent and intense weather events. The Committee welcomes the Taskforce’s efforts, particularly in regard to the establishment of near-term solutions to improve insurance affordability.
Structure of the report
1.34Chapter 2 provides an overview of the 2022 major floods and their impact on affected individuals and communities.
1.35Chapter 3 explores flood risk management in Australia and the potential challenges ahead in the context of the increasing frequency and severity of floods.
1.36Chapter 4 considers policyholders experiences with insurers’ claims processes and handling and identifies areas for improvement.
1.37Chapter 5 considers customer engagement and communication processes of insurers and identified areas for improvement.
1.38Chapter 6 considers policyholders and insurers’ experiences with internal and external dispute resolution processes.
1.39Chapter 7 examines ongoing oversight of insurers’ practices and identified areas for improvement.
1.40Chapter 8 examines the Government’s response to the major floods and identified areas for improvement.
1.41Chapter 9 considers both short- and long-term approaches to improve insurance affordability and accessibility, as well as flood mitigation measures to improve affordability of insurance.
Acknowledgements
1.42The Committee would like to thank all stakeholders who made submissions to the inquiry, corresponded with the Committee, completed its survey, attended public hearings, and hosted the Committee on site visits.
1.43The Committee recognises that this report comes two years after the major floods took place. Many affected individuals and communities are continuing to endure the impacts of the floods. Shops remain closed, houses have not been rebuilt, and many people are still relying on temporary or unstable accommodation, or have relocated away from their communities. The Committee sincerely thanks the people who bravely shared their experiences and helped to inform the Committee’s recommendations. This evidence provided the Committee with a deeper and more nuanced understanding of the impacts of natural disasters on individuals and communities.