Home insurers are overwhelmingly paying cash to settle claims, leaving Australians to foot blowouts in repair costs for their cyclone-damaged homes.
The corporate regulator is calling for “realistic” bigger payouts, warning the practice could cause “unfair outcomes” for people already in vulnerable positions.
In a report released on Monday, the Australian Securities and Investments Commission (Asic) found many homeowners were being paid based on a single quote from insurers’ favoured builders.
Asic commissioner Alan Kirkland said homeowners were then left to find tradespeople, oversee repairs and pay for unexpected costs and damage, all issues that would otherwise have been handled by insurers.
“The easy option for insurers can be the expensive one for homeowners,” Kirkland said.
“If the amount falls short, consumers can be left shouldering the cost of repairs and paying the difference out of their own pocket.”
A spokesperson for the Insurance Council of Australia said cash settlements could give customers flexibility and control over their own repairs. They said the industry had improved since Cyclone Jasper and focused on ensuring settlements were clearly explained and understood.
Asic reviewed a sample of home building insurance claims from Cyclone Jasper, which hit far north Queensland in December ۲۰۲۳.
It looked at the companies that it said accounted for most of the home insurance industry: Insurance Australia Group (IAG), AAI, QBE Insurance, Allianz Australia and Sure Insurance.
Asic said insurers professed to prefer to settle claims by managing repairs or rebuilding, not by paying cash. The review found none of the five were systematically recording why claims were being settled with cash.
Cash settlements were used in more than ۶۳% of final claims. IAG and Allianz each used full or partial cash settlements in more than ۸۰% of cases.
Most cash settlement offers were based on just one quote and most of those were from insurers’ preferred suppliers, the review found.
Asic said it was concerned the quotes may not be high enough to cover customers’ repair costs, as customers may not be able to get the discounts given to insurers.
In one case, an insurer’s preferred builder provided a quote at a ۴۰% discount and the insurer paid out that cheaper quote in cash. When the customer asked the builder to repair their home for that cash amount, the builder refused.
Some insurers applied extra pay to account for their suppliers giving the insurer a discounted quote but none had consistent systems in place to do so, the review found.
Insurers rarely provided consumers enough information to determine if cash was their best option. Three insurers did not tell consumers their policies permitted them to change their mind after accepting cash settlements, though two later told Asic they had begun clearly informing consumers of their rights.
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Four of the five insurers had flawed approaches for identifying and assisting vulnerable customers, the report found.
While the report did not identify any breaches of legal obligations, it said insurers would clearly comply with the rules if they ensured cash settlement offers were based on market prices, not discount rates.
The costs of construction and repairs have soared in recent years, with a resulting surge in home insurance costs.
Finity, an analytics company, has found home insurance premiums rose ۵۱% in the five years to October ۲۰۲۵.
Insurance prices generally rose ۴.۲% in the year to July, faster than inflation of ۳.۵%, the Australian Bureau of Statistics reported on Wednesday.
Asic earlier this month advised car owners to challenge their insurers and shop around for better deals after finding insurers were failing to clearly justify their steep increases to premiums.
Complaints about home building insurance have returned to highs not seen since ۲۰۲۲-۲۳ due to insurers’ delays in handling claims.
The Insurance Council of Australia has found the climate crisis and increasing incidence of extreme weather has nearly tripled total costs for insurers.
In a ۲۰۲۵ report, it estimated extreme weather had generated $۴.۵bn worth of claims each year on average in the ۲۰۲۰s.
