The government must act to prevent flood victims, exhausted by protracted battles with insurers, from accepting unfair, under-compensated compensation for their damaged homes, according to the author of a new report.
Antonia Settle said victims of Victoria’s 2022 floods were forced to accept cash rather than have their homes rebuilt by their insurer after “long and bitter disputes with their insurer and ultimately losing trust in the insurer to carry out the repairs”.
“Households tend to fare poorly when it comes to cash compensation, which means that the outcomes of cash compensation are often unfair,” she said.
Commissioned by Financial Counselling Victoria, Dr Settle’s report drew on the experiences of the service’s clients following the widespread flooding in Victoria in 2022.
In one case, a couple was initially offered $175,000 to replace household goods and rebuild their flood-damaged home.
The insurer made a cash offer after failing to find a contractor to do the work.
After the couple enlisted the help of a financial advisor, the payout increased to a total of $375,000.
Corporate lawyer Madeleine Serle, whose home in the Melbourne suburb of Maribyrnong was flooded in October 2022, said that although she was a smart woman, she “would have been duped by her insurance in a heartbeat”.
She said that insurance needs to be urgently reformed.
“I have never seen a more disorganized industry in my life,” she said.
“It’s absolute chaos.”
The report was released by Victorian Labor MP Daniel Mulino, who is leading a federal parliamentary inquiry into the insurance industry’s response to the 2022 statewide floods.
Dr Mulino said his committee would look very closely at Dr Settle’s report.
Daniel Mulino is leading a parliamentary inquiry into the insurance industry’s response to the 2022 Australian floods. (ABC News: Brett Worthington, file photo)
“All too often, I think the cash settlement reflects the point where the client says, ‘I just want to be done with this,'” he said.
He said the lack of cash payments for adequate reconstruction also revealed other problems, including underinsurance and changes in building standards that increased costs.
“The gap between cash payments and what a client needs to get their life back on track is another sign of systemic problems,” he said.
Insurance lawyer John Berrill told ABC that cash payouts were the biggest problem arising from the 2022 floods.
He said homeowners often accepted cash payments after arguing with their insurers over issues such as whether the damage was caused by flooding (which is excluded from many policies) or storm damage.
Insurers are “making decisions, and doing so early, but in many cases these decisions are clearly inadequate,” Berrill said.
In her report, Dr Settle recommends standardising insurance terms and conditions to improve comparability of policies and reduce confusion, giving insurers more flexibility to repair homes so they can be rebuilt to higher standards, and providing stronger protection for vulnerable households after cash payments.
