Government must regulate exploitative insurance claims managers in wake of bushfires

As significant numbers of insurance claims loom in the wake of Australia’s bushfire crisis, consumer groups today called on the Federal Government to urgently regulate insurance claims management services.

Insurance claims management services are for-profit businesses that sign up policyholders and, for a fee, undertake the administrative work on an insurance claim. Claims management services typically work for a percentage of any cash settlement offered by the insurance company so their work is conflicted. This is because a cash settlement is often not in the best interests of people affected as the amount is not guaranteed to cover the full cost of rebuilding houses and repairing property.

“These services target homeowners in the aftermath of natural disasters,” said Cat Newton, Senior Policy Officer at Consumer Action Law Centre. “At a time when the members of our community are at their most vulnerable, the last thing they need to deal with is an exploitative business.”

“People are right to be wary. The fundamental conflicts of interest borne of charging fees to manage insurance claims can lead to poor outcomes for the people these companies promise to help.”

She says that unregulated companies may push for cash settlements rather than getting the insurer to rebuild or repair, and inflating or dragging out insurance claims to boost their own fees. “These tactics may work out for some people but are likely to cause significant problems for many.”

“People making an insurance claim deserve to be treated fairly and with compassion.” says Patrick Veyret, Policy Adviser at CHOICE. “Anyone can hang out their shingle and call themselves an Insurance Claims Management Service. There are no qualifications, training or skill requirements for operators in the industry. This leaves people incredibly vulnerable to the service placing their commercial interests above the policyholder’s best interests”

“What’s really frustrating is that there are free, not-for-profit services that can provide the support that such exploitative business charge fees for,” said Fiona Guthrie, chief executive of Financial Counselling Australia.  “Financial counsellors, for example, can support people as they are trying to rebuild their lives, especially when they have access to free legal advice from places such as the Insurance Law Service and Consumer Action Law Centre.’’

“The government’s draft legislation to regulate claims handling does not cover these dodgy companies. The government can close this loophole right now to reign in the worst excesses of this industry,” said Karen Cox, CEO of the Financial Rights Legal Centre. “Royal Commissioner Hayne made it very clear in his recommendation that there should be no exemptions from the law, yet here is a perfect example of where business that aren’t regulated are causing serious problems for consumers. Such poor drafting of legislation simply leaves loopholes for unethical businesses to exploit.”

Background

  • Financial Rights has released a fact sheet on warning of the pitfalls in using Insurance Claims Management Services.
  • The Government is currently consulting on legislation to implement Financial Services Royal Commission Recommendation 4.8 to make insurance claims handling a financial service. Commissioner Hayne found that there is no basis in principle or in practice for continuing to exclude handling and settling an insurance claim, or a potential insurance claim, from the definition of a ‘financial service’ in the Corporations Act 2001, as for consumers the intrinsic value of an insurance product lies in the ability to make a successful claim when an insured event occurs.
  • Consumer groups have made submissions to this consultation calling on the government to capture Insurance Claims Management Services.
  • ASIC has released a statement warning consumers away from using “unscrupulous service providers”. [1] The Insurance Council of Australia too have released information warning policyholders away from the using what they are calling storm chasers. [2]

 

[1]ASIC,  20-006MR ASIC encourages fair and effective insurance claims handling for people affected by the bushfires – warns against unscrupulous “service providers”, 9 January 2020 https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-006mr-asic-encourages-fair-and-effective-insurance-claims-handling-for-people-affected-by-the-bushfires-warns-against-unscrupulous-service-providers/  

 

[2] ICA, The scope of works process – What is it?, 2 July 2018 https://disasters.org.au/news/2018/7/2/building-insurance-and-the-scope-of-works-process-what-is-it-and-why-is-it-necessary, ICA, Beware the Storm Chasers https://disasters.org.au/news/2019/11/19/beware-storm-chasers and ICA, Victims of $871 million hail storm being exploited by scammers, January 21, 2019 http://www.insurancecouncil.com.au/assets/media_release/2019/210119%20Victims%20of%20$871%20million%20hail%20storm%20being%20exploited%20by%20scammers.pdf

 

ENDS

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