Australia’s corporate watchdog has issued a warning to home insurance companies over the use of cash settlements that may leave policyholders out of pocket. The Australian Securities and Investments Commission (ASIC) released a report highlighting concerns about insurers’ reliance on preferred suppliers when making cash settlement offers following repair claims after Cyclone Jasper hit Queensland in December 2023.

ASIC Commissioner Alan Kirkland raised doubts about whether these cash settlements reflect the true market cost of repairs. He noted that insurers often base settlement amounts on quotes obtained from their preferred suppliers, which may not correspond to prices consumers would encounter when seeking independent quotes. “You would reasonably expect that insurers can get better prices from their preferred suppliers than what a consumer could get in the open market,” Kirkland said, suggesting this discrepancy could result in unfair offers.

The report detailed instances where insurers’ cash offers were based on significantly underpriced quotes. In one case, a customer was offered a cash settlement based on a preferred builder’s quote; however, when the customer approached the same builder to complete the work, the builder revealed it had undercut its own costs by approximately 40 percent for the insurer. After the customer lodged a complaint, the insurer increased its offer by 16.5 percent and added a 20 percent contingency.

ASIC’s review of claims stemming from Cyclone Jasper found that 52 percent of cash settlement offers relied on just one quote, with 73 percent of those coming from the insurer’s preferred supplier. The agency has put the insurance industry “on notice” that it will consider enforcement action where it identifies unfair pricing practices.

The watchdog examined five major insurers—Insurance Australia Group (IAG), AAI, QBE, Allianz, and Sure—but did not attribute specific practices to any company. ASIC emphasized that cash settlements are not inherently improper and acknowledged that some consumers appreciate the speed and flexibility they provide. Insurers are also required to inform policyholders if they are entitled to insurer-managed repairs rather than a cash payment, although ASIC did not specifically investigate whether this information was consistently communicated.

An Insurance Council of Australia spokesperson responded by affirming the industry’s commitment to fair outcomes and clear information regarding cash settlements. The industry has updated guidance and consumer resources under the General Insurance Industry Action Plan and is in the process of revising the General Insurance Code of Practice to establish stronger, enforceable obligations on cash settlements and additional support for vulnerable customers.

Kirkland encouraged consumers to actively engage with insurers during settlement negotiations, advising them to request multiple quotes and challenge offers when necessary. He also highlighted the importance of lodging complaints with insurers or escalating unresolved disputes to the Australian Financial Complaints Authority (AFCA) to ensure fair treatment.