The Australian Securities and Investments Commission (ASIC) warned home insurers who offer cash settlements to make sure that their assessments reflect the true cost of repairs and do not short-change homeowners, the regulator said in a Monday statement.
The ASIC's review of practices at five insurers, including Insurance Australia Group (ASX:IAG) and QBE Insurance Group (ASX:QBE), found that full or partial cash settlements, where insurers repair or rebuild some of the damage, were used in at least 63% of reviewed claims.
More than half of the cash settlement offers were based on a single quote, with insurers frequently depending on quotes from preferred suppliers that may not reflect the price consumers face if they arrange repairs themselves, the regulator said.
The ASIC said it discovered "concerning gaps" in how insurers support vulnerable consumers during the claims process, and also found that settlement amounts can rise significantly after a consumer lodges a complaint, which raises questions about the fairness of initial offers made by insurers.
"While cash settlements can offer flexibility and faster resolution, consumers must be given enough information to understand what the settlement will cover, so they can make an informed choice," said ASIC Commissioner Alan Kirkland.
"If homeowners are taking on more work, more risk and potentially more costs, home insurers need to take this into account when offering to settle with cash," Kirkland added.
The Insurance Council of Australia did not immediately respond to a request for comment from.
QBE Insurance Group's shares added 1% in recent Monday trade.