An ICA-commissioned report sets out proposals for change after last year’s floods tested insurers at a scale never previously experienced

By Wendy Pugh

When the next major natural disaster hits, the community will expect improved insurer responses, Deloitte says in a report identifying actions the industry should take to address failings that emerged from last year’s record flooding.

The professional services firm’s report was commissioned by the Insurance Council of Australia (ICA), and finds inadequate insurer scenario planning and outdated systems and processes were exposed by the scale and complexity of the Queensland and northern NSW flooding disaster in February and March.

“The event and the external factors playing out at the time has set a new benchmark for community expectations around consistency and quality of catastrophe preparedness within the insurance industry,” Deloitte says.

“Policyholders and the broader community have higher expectations for future responses, and regulators will require action from insurers to improve policyholder outcomes.”

The report is titled The New Benchmark for Catastrophe Preparedness in Australia, and has been accepted in principle by ICA, which has committed to delivering a progress report in the second half of next year.

Deloitte says insurers have made improvements since the flooding but more needs to be done, and its recommendations cover preparedness, customer experience, resourcing, operational responses and governance and transparency.

Five recommendations are aimed at insurers, a sixth targets industry and government co-ordination and a seventh proposes a reworking of the code of practice extraordinary catastrophe definition. Some 24 areas are identified that could make significant improvements.

They include the need for technology overhauls and better communications with policyholders. Several insurers were still using DOS-based systems during the floods, while policyholders were frustrated by a lack of information on the progress of claims.

Deloitte says insurers would benefit from a single integrated claims view of a customer that would allow them to track and monitor claims, including third-party supplier involvement, enabling better decision-making and customer interaction.

Insurers should also consider the feasibility of technologies such as machine learning, automation and generative artificial intelligence (AI) to improve handling times and customer experience, particularly in the context of catastrophes, it says.

Deloitte suggests a consistent level of baseline preparedness is needed for extreme weather events, after training standards were relaxed last year as insurers struggled to add large numbers of new staff.

It says consideration should be given to “the maximum number of resources” training and onboarding teams can manage at any one time during a catastrophe to maintain a baseline level claims and complaint handling quality.

And it proposes insurers should review the effectiveness of the definition, identification and support of vulnerable customers, and consider other ways of categorising and supporting policyholders through events, given that after a major catastrophe most people will be vulnerable in some way.

Policy design, the sales process and product affordability were not part of the review, but Deloitte notes the definition of flood, storm and stormwater runoff was a source of confusion and having hydrologists assess inundation causes led to delays.

“Where policy terms are known, or expected, to create bottlenecks or claims handling delays during periods of high claim volumes, insurers should consider how or if the policy terms or associated claims processes can be changed,” it says.

A Federal Parliamentary committee inquiry into insurers’ response to the flooding will take the Deloitte report into account as part of its work. That inquiry encompasses other events during the year and has wider terms of reference.

Financial Rights Legal Centre Senior Policy and Communications Officer Julia Davis says ICA’s commissioning of the report is “positive”, while shortcomings include a lack of clear benchmarks and the fact that the report doesn’t address issues around policy structure, definitions and exclusions.

“Those questions are just fundamental to the gap between customer expectations and what really happened,” she tells Insurance News. “There’s critical questions around product design that were left out and I think that’s a missed opportunity.”

Ms Davis says care needs to be taken in implementing the proposals. Examples include considering appropriate areas where generative AI may be introduced and ensuring staff training includes understanding how trauma affects people.

“When there’s a pile of evidence that points to poor communication and poor claims handling, it’s not the time to move away from human contact,” she says.

“When someone has been subjected to one of the worst days of their life, the last thing they want is to talk to a robot.”

Queensland Legal Aid Principal Lawyer Paul Holmes says the Deloitte report provides good recommendations around improving the customer experience, communication, claims handling and resourcing.

“We’re looking forward to seeing that happening, but we’re also looking forward to seeing the work, which I know is being started, around things like addressing how wear and tear clauses are dealt with, addressing consumer understanding of cash settlements and looking at temporary accommodation,” he says.

Mr Holmes says recommendations are only as good as their implementation, and the plan to report on progress is welcome. The true test of success will only come with the next inevitable major disaster.

Deloitte highlights that the number of claims from the floods was more than six times higher than the average for catastrophes declared since 2016, and the event followed a compounding array of disasters over the previous few years – and the covid pandemic. It triggered $6 billion in insured losses.

The review involved eight insurers most impacted by the catastrophe. Some 80 staff were interviewed and 400 documents assessed. Regulators, the Australian Financial Complaints Authority, consumer groups and other stakeholders were consulted.

ICA says despite the challenges the industry is on track to finalise every valid claim from the flood catastrophe and it is working to better prepare for future events. The Deloitte report offers a road-map for moving forward.

“Australia has the conditions to underpin an insurance industry at the global frontier of extreme weather responsiveness,” Chief Executive Andrew Hall says.

“Repeated exposure to such events, coupled with established disaster institutions and frameworks, means Australian insurers are well placed to show the world how to respond effectively and efficiently to extreme weather events.

“This will always need to be weighed up against the cost impacts and keeping insurance affordable.”