Claims failings following the 2022 catastrophes opened the door to ‘disaster chasers’, but insurers warn they are more of a hindrance than a help
By Claire Heaney
The federal parliamentary flood insurance inquiry laid bare shortcomings in the industry’s handling of claims and its ability to process them quickly and, in some cases, fairly.
The House Standing Committee on Economics’ final report, Flood Failure to Future Fairness, made 86 recommendations, including requiring insurers to accept or deny a claim within 12 months. Failure should trigger acceptance of the claim, the report released last October recommended.
In 2022, floods devastated communities in Queensland, NSW, Victoria and Tasmania, leading to more than 305,000 claims and $7.7 billion in losses, according to the Insurance Council of Australia.
The unprecedented floods also opened the floodgate, for want of a better word, for third parties looking to take over claims and, in some cases, exploit vulnerable people.
Some policyholders felt the wheels were not moving fast enough, and insurers did not scale up to handle the claims onslaught amid post-covid shortages in labour and materials, plus soaring costs.
Variously described as middlemen, storm chasers or disaster chasers, the third parties promise insureds they will cut through the red tape and finalise claims fast. But the results are mixed. The insurance industry warns these self-styled knights in shining armour may not be all they’re cracked up to be.
The Insurance Council of Australia says it has seen a rise in claims management groups operating in the disaster recovery space.
“These are companies that swoop in after natural disasters, promising quick fixes but often leaving people worse off,” ICA tells Insurance News.
“These companies sometimes mislead customers, claiming they’re working on behalf of insurers when they’re not.
“Vulnerable people, especially those in high-stress situations, might not realise they’re dealing with a third party and sign up to hefty contracts with hidden fees.”
ICA says some outfits demand a cut of any cash settlement. Their fees can be as much as 20 per cent.
And it warns that customers engaging with such companies may face worse outcomes.
“These are companies that swoop in after natural disasters, promising quick fixes.”
Insurance Council of Australia
“In some cases, these disaster chasers prevent insurers from accessing properties or make repairs using their own contractors without insurer approval, leaving customers in the lurch when things go wrong.”
ICA says people affected by extreme weather should contact their insurers directly. “By doing this, support, transparency and complaint avenues are clear and customers can ensure their claims are dealt with properly, fairly and to the highest standard.”
Third-party companies might doorknock, leaflet drop or have an online presence.
Australian Financial Complaints Authority lead insurance ombudsman Emma Curtis tells Insurance News: “If a consumer chooses to engage a paid representative, it’s important to note that fees are usually payable to the representative.
“If the complaint is resolved with a cash settlement, part of that settlement may go towards these fees, which could mean there is not enough left to cover repairs. Insurers typically only include the cost of repairs in a settlement, and AFCA is unlikely to award additional funds to cover the paid representative’s fees.”
She urges policyholders to carefully consider whether a cash settlement is in their best interest or it is better for the insurer to do the repairs.
“If the insurer does the repairs, the repairs will be covered by warranty and the risk of the cost of repairs increasing beyond the quote is borne by the insurer,” she says.
Ms Curtis says AFCA’s free processes are designed to let policyholders access services without professional help. A consumer can have someone else help with their case, such as a family member, friend, financial counsellor or community legal centre lawyer.
WEstjustice lawyer Joseph Nunweek says people can be confused by third parties when searching online. “They might be stressed. Some of our clients might be older, with technology or language barriers,” he says.
The WEstjustice catchment, in Melbourne’s west, covers a diverse multicultural community, many facing digital skill and language gaps. Mr Nunweek says the third-party companies may represent themselves as one-stop shops, and some insureds will think they are affiliated with the insurer.
While he says he is more familiar with such issues around car cover, the community legal service encourages people struggling with language, literacy or technology barriers to seek a community leader or support worker to help them navigate a claim.
It also urges insureds to avoid bogus websites by using the phone to manage their insurance claims.
“You are more likely to end up in the right place using the phone number,” he says.
He acknowledges long waits to speak to insurer staff can be frustrating, but says it may be more effective in the long run than engaging with a chatbot.
He says some so-called claims farmers may list several insurance companies on their websites, and insureds may think they act for those groups.
When Melbourne’s west was flooded in October 2022, the relatively small catastrophe zone meant people dealt with their insurers directly, with mixed levels of satisfaction. Flood victims met at nominated central points to get assistance, Mr Nunweek says.
But when disasters unfold across much wider areas, such as the Northern Rivers in NSW, it is hard to reach everyone.
Luke Dugdell, managing director of third-party operator Claims Hero, argues labels such as “disaster chasers” and “storm chasers” unfairly risk “tarnishing legitimate companies, licensed and regulated by the Australian Securities and Investments Commission, dedicated to helping policyholders.
“We consider ourselves consumer advocates. We don’t engage in doorknocking or jumping on roofs. Often, we’re called in when a claim is 12 months old, the policyholder is overwhelmed, and they need assistance.”
Mr Dugdell says many clients are won through word of mouth, and Claims Hero even receives referrals from within the insurance industry.
Typically, the company is engaged for complex claims or when the relationship between the insured and the insurer has broken down.
“We consider ourselves consumer advocates. We don’t engage in doorknocking or jumping on roofs.”
Luke Dugdell, Claims Hero MD
“In some cases, the insurer has triggered a settlement offer, and we’re called in to help the policyholder get a fair offer from the insurer,” he says.
“Policyholders do not have access to the resources that the insurance industry does, often finding it difficult to find experts to provide opinions or builders to assist in understanding the damage.”
He says service providers working for insurers often refuse to work directly with the public or claims advocates, creating an additional barrier for policyholders seeking fair outcomes.
Claims Hero has “multiple fee models available, depending on the claim circumstances and consumer preference”.
Some cases require up to 300 hours of work, Mr Dugdell says. “This effort often results in securing increased claim values for policyholders or overturning incorrect decisions. A lot of time is also spent supporting the customer through the process.”
Mr Dugdell points to compliance issues within the industry.
“The General Insurance Code of Practice is poorly adhered to, and breaches are essentially unenforceable at the consumer level. If the industry is serious about improving consumer outcomes, I encourage it to make code provisions enforceable through the policy.”
Addressing criticism that advocates chase cash settlements, Mr Dugdell says it is not the case.
“Sometimes it’s the insurer insisting on a cash payout rather than undertaking repairs. Policyholders also elect to cash settle when the relationship between the insurer and policyholder has completely broken down; it’s like asking a divorced couple to build a house together.”
Mr Dugdell says his company does not receive kickbacks or incentives for connecting policyholders with tradespeople.
In a submission to the federal flood inquiry last year, Financial Counselling Australia said there was a “widespread practice” of insurers offering inadequate cash settlements. Data from one financial counselling body serving a regional Victorian area showed it had negotiated a total increase of more than $3.3 million on cash settlements offered to 40 clients, at an average of $83,182 per client.
The increases reflected the overturning of previously declined claims, problems with scopes of work, temporary accommodation issues, uplifts requested and non-financial loss compensation.
In a letter to insurers last March, ASIC commissioner Alan Kirkland called on them to lift their game on claims. He said the commission expected the industry to respond to reviews including the ICA-commissioned Deloitte report, ASIC’s Navigating the Storm paper from August 2023 and the parliamentary floods inquiry.
Since early 2022, third-party organisations must be licensed through ASIC, meaning claims handling and settling services are regulated and need to have a financial services licence.
Policyholders are urged to ensure any claims management company has such a licence.
