Sharman Stone (Murray, Liberal Party) Share this | Link to this | Hansard source

I wish to speak on what was indeed an excellent report undertaken by the Standing Committee on Social Policy and Legal Affairs. It is called In the wake of disasters. What the committee did was to enquire into the insurance industry's response to the 2010-11 extreme weather events that occurred around Australia. These included fire and flood. We travelled extensively and spoke to insurance companies and the victims of these disasters. We were often quite shocked by the level of distress and concern still being felt by people who had insurance. This was many months after the disaster itself.

We therefore came up with a series of recommendations that we believe will substantially assist the people who take out insurance and also the insurance companies themselves through better regulation, better communication with policy holders and better transparency and clarity across the sector. The recommendations include, for example, that the Insurance Contracts Act 1984 be amended so that there is an obligatory option of full loss replacement and flood cover. This sounds like common sense but it is needed very much. We also said that, should there be a deviation from the standard cover, it be at least communicated to policy holders. Again, you would expect that to be common sense, but we found that was not occurring. We also want to see a standard definition of flood and I am pleased to say that is already being taken up by this government to ensure that, if you have flood cover on your policy, it does not vary from that of your neighbour who experiences the same event but has different flood cover from a different insurance company.

We recommended that we also amend legislation to remove the general insurers' exemption from unfair contract terms. It seems extraordinary that in Australia we exempt any sector or component of service delivery from unfair contract terms, but we do. More than that, we allow, should there be a disaster in play, that the insurers can set aside the code standards. Just when you most need your insurance company to be talking to you in a timely way, when you most need them to have expert hydrologists or loss assessors to deal with your claim, in fact general insurers are exempt from conforming to the code standards. We are saying that is a nonsense. There should not be an exemption. We are also saying that the whole business of voluntary conformity to codes of practice clearly has not worked when it comes to the insurance industry in Australia and therefore there should be mandated compliance with codes on issues such as time standards for when you first have your insurer respond to you, for sending assessors, in making sure that any disputes are dealt with and that customers are given information about where to go if they move from internal dispute resolution to, for example, the Financial Ombudsman Service or the external dispute process.

We have a case in Australia of good policy intent on the part of insurers but real failure when it comes to dealing in a timely and professional way with individual claims. I will give you some of the examples of the distress we found. In my electorate of Murray we experienced some of the worst floods on record over the Christmas-New Year period last year, January and February 2011. We had farms inundated. A lot of livestock were lost. Over $2 billion worth of livestock and infrastructure such as fencing and shedding was lost. We also had whole towns like Bridgewater, Rochester, Serpentine and Pyramid Hill, completely inundated by floods. As you always find, there was a variety of different insurers who had been selling policies into those communities for a very long time. In some cases there had been more than 20 or 30 years of policy purchasing from some companies and there was an expectation that the insurance companies would be there to help at this time of extreme distress. We found that some insurance companies told people whose homes had been flooded, for example in Rochester: 'Whatever you do, do not touch any of your soft furnishings, carpets or curtains. Do not remove mattresses or anything that is in your home that you wish to make a contents insurance claim about. Do not touch any of that sodden material until your insurance assessor visits and makes an assessment.' Can you imagine week after week of your home being full of this wet and mouldy bed linen, mattresses, carpets and curtains?

There was a disease hazard fairly soon with the incidence of moulds and fungi. However, nearby to that particular individual who was told, 'Don't touch any of the internal contents of your house,' the neighbour with a different insurance company was told, 'Just take photos. Make sure you take a lot of photos of the flood damage in your home or in your garden shed. We trust you. We will do the right thing by you, and by all means get all of the wet mess inside your house outside and dispose of it as soon as you can.' You can see the common sense of that response. You can also understand the despair of those who were told, 'Do not touch the contents of your home until we get there.'

The business of 'until we get there' was problematic because of the huge number of claims being made all of a sudden. You had assessors who did not arrive for weeks. You had hydrologists whose actual qualifications were suspect. When we went into Queensland flood affected areas, we were told of hydrologists who claimed that the flood was clearly from a river from the west when the locals could tell you, 'No, it was from the river from the south.' In one street with different insurance companies with policies sold into the street, we had five or six different interpretations of what the event actually was all about: the directions of flooding, the severity of flooding, the timeliness of the flooding. This is just a nonsense. You can imagine, as I said before, the stress put on victims of these floods when they are not only dealing with the huge losses in front of them: loss of irreplaceable things like old photos, children's clothing, perhaps the loss of pets, or the loss of their livelihood if they had a home based industry. Not only did they have to deal with those losses but they were at war with their insurance companies, who were treating them like enemies rather than as valued customers.

We have made a significant number of recommendations which we believe will help change that situation. We have recommended a code of practice that is no longer voluntary but is mandated, and conformity must be required. We want to make sure that external dispute resolution processing for claims includes looking at the effectiveness of the Financial Ombudsman Service. We are quite sure the Financial Ombudsman Service means well, but they were missing in action when it came in particular to the Victorian floods. They did not make any local public statements in the media; they did not attend in emergency centres. Most people we spoke to in the inquiry did not know who they were or what they did. Their name does not help, of course—there is no mention of insurance or emergency in their actual title.

We also found a lot of the customers of insurers were not told about dispute resolution. It was a very serious omission on the part of the insurance companies not to make it clear that, if they rejected the claim in the first instance, there were other places the customers could go to have their claims reviewed or queried. We found that some insurance companies simply put onto their phones in their call centres casually employed novices who knew nothing about the insurance industry or about the traumatic event itself. So, with the first phone contact, those claiming insurance cover were often told quite blatantly, 'You have got no claim possibility here. You are not going to get any payout, so don't bother ringing again.' This is quite an appalling situation. We believe there must be in every instance the right of a person with an insurance policy to have their claim properly assessed and for them to go to a review process if they do not get the outcome that they are after. So we want minimum standards for claims handling in times of exceptional circumstances, such as a declared disaster.

We want a time frame for informing clients of the progress of their claim; a time frame for advising claimants if an external expert has been appointed to look at their particular claim situation. They could be the assessors or the hydrologists. We also want assurance that the external experts are fully qualified to undertake assessments. We had evidence where we were told that, while there was an expectation a qualified hydrologist or a qualified assessor would come and look at the claim, in fact there was a great deal of suspicion that the person was not qualified or there was a query about whether the person actually visited the premise or the farm to do on-the-ground assessment; it was done from afar. And you can imagine the outcomes for the person with the claim.

We want information provided to the claimants about the qualifications, the employer and the role of the external experts insurers appoint to assist with their claim. There is not always satisfaction for the claimant if they understand the hydrologist or the assessor is employed by the insurance company. Clearly it is in that insurance company's interest to have a particular outcome from their paid external experts. We want a maximum time frame for accepting or denying the claim, and we want a time frame for responding to requests for information. These are such basic consumer rights but they are rights that have been neglected by the insurance companies, particularly at a time of crisis.

We want an undertaking that all decisions about insurance claims are communicated to the claimant in writing, with clear and explicit reasons relating to their particular claim. We do not want to see again a call centre casual employee making, it would appear, a decision over the phone and telling the claimant, 'Don't bother ringing again. There's no way you're going to get cover.' We want a time frame for informing claimants of the progress of their complaint or dispute.

So there are a range of common sense, simple requirements in our inquiry recommendations. They are not necessarily expensive requirements. They are not going to add greatly to the cost of insurance, we do not believe. They are simply about the rights of claimants, to try to minimise the distress for people in these extraordinary circumstances.

We also believe that insurance companies that have breached the code or that are involved in systemic issues and any types of breach should be named, that they do not go anonymously onto the record if they are found to be a problem by the Financial Ombudsman Service, as is currently the case. They should be named so that the consumer can see where there is a company they may not wish to buy a policy from.

We recommend that the Australian Securities and Investments Commission amend the regulatory guidelines 139 by 1 July 2012 to require the Financial Ombudsman Service to report regularly to ASIC and then to make public those breaches, as I have just mentioned.

We also want to make sure that the Australian government empowers ASIC to regulate claims handling and settlement of financial service providers. The voluntary regulation that has been the hallmark of this industry, as I said earlier, just does not work. You cannot have voluntary compliance with codes of conduct and practice where it is a case of the insurer being able not to pay a claim, obviously at a great commercial advantage to them, when paying the claim was the right thing to do. We want to make sure ASIC is comprehensively involved monitoring and regulating claims-handling and settlement processes—imposing sanctions on insurance companies under ASIC licence remedies on behalf of consumers; and we want them to negate the current exemption of claims handling and settlement from the definition of 'financial services' for the purposes of the Corporations Act 2001. These exemptions simply should not exist.

We conducted this inquiry in an environment where there were still victims suffering greatly from the poor practice of their insurers. In the case of Northern Victoria we still have individuals waiting for claim resolution. We have now a new set of flood dangers, as we speak, occurring in Northern Victoria and in parts of the Mallee. These issues have to be resolved. We have to have insurance companies that are fair and are not able to voluntarily defer from behaving properly.

Debate adjourned.