Insurers “combative” after Vic floods, Committee told

CHAIR: Welcome to representatives from the Victorian Council of Social Service. Thank you both for appearing today and for your submission. I remind you that, although the committee does not require you to give evidence under oath, the hearings are legal proceedings of the parliament and warrant the same respect as proceedings of the House. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. I invite you to make a brief opening statement if you wish.

Ms POPE : Thank you and good morning. My colleague and I are joining you from the sovereign, unceded lands of the Wurundjeri Woiwurrung people of the Kulin nation, and we’d like to begin today by paying respects to ancestors and elders. Thank you for the invitation to speak today.

VCOSS is the peak body for Victoria’s social and community sector. We have more than 300 member organisations, including many organisations that helped people during and after the Victorian floods of 2022. After those floods, VCOSS conducted about 50 one-on-one consultations with these community organisations, and we also convened a wider community feedback forum in northern Victoria. Our submission today will draw on these insights and the expertise of our members. We don’t have specific expertise in insurance law and regulation and would defer on technical matters to our colleagues, some of whom you’ve just heard from—Consumer Action Law Centre and West Justice—together with the Financial Rights Legal Centre and CHOICE, who, as you are well aware, provided a comprehensive submission on behalf of consumer advocates.

We do, though, know when something is broken. We know when people aren’t getting what they need when they need it, and we know when change is required. As we consulted after the floods, one of the biggest issues we heard was the inadequacy of insurance. The message was loud and clear that the insurance system isn’t working and that the market failure here is entrenching poverty and making people more vulnerable to future disasters.

Specifically, there are three main problems that I’d like to step through, the first being the attitude of insurers after the floods, which was often quite cavalier and combative. The second is insurance being unaffordable for many and underinvestment in disaster mitigation increasing the costs of insurance. Finally, we will raise the issue of the burden that insurance unaffordability places on community services that are already under pressure.

Firstly, on insurer attitudes and behaviours, those who lost their homes and belongings in the Victorian floods told us that insurers pushed back on them and pushed back again until a person simply gave up. Finally, when the insurer did agree that there was flood damage and there should be a payer, we heard they pressured customers to accept a cash settlement which was so low that it didn’t cover the true cost of rebuilding. We heard about people being kept in the dark about the status of their claims for months at a time and about delays which required people to put their lives on hold and forced many to struggle through another winter in a caravan. A massive power imbalance exists here. Customers are taking low cash settlements and copping the hardship that follows because it feels like they don’t have much other choice, so we need to change the way that insurers treat their customers. Insurers should cover customers’ full accommodation costs until rebuilding works are completed rather than leaving them in the lurch, and they should attribute damage after major floods to the flood rather than making unreasonable claims about pre-existing issues and wear and tear. And insurers need to keep people updated regularly on their claims.

The second problem highlighted is the barrier to accessing insurance. Roughly 60 per cent of homes affected by the October 2022 floods were either underinsured or not insured at all. That number is going to keep growing, for two main reasons. Firstly, adequate insurance simply costs too much, and premiums continue to rise in disaster-prone areas. People can’t afford insurance when they are struggling to put food on the table, pay their energy bills and pay their medical expenses. Secondly, insurers are outright refusing to cover some people in flood affected areas and, indeed, are withdrawing from entire regions because of high risk.

The consequences are as tragic as they are predictable. People living in flood-prone areas without adequate insurance are being pushed into poverty. In the words of one resident we spoke to in northern Victoria: ‘Flood insurance will be unaffordable around here from now on. My home is worth nothing.’

Government’s role in addressing this issue is a long term one, and it means having genuine conversations with communities about addressing risks and building community resilience to future disasters. This should involve mitigation and genuinely place based community solutions.

The third aspect is the impact on the community sector when the insurance system fails. The community sector has put in a herculean effort to support people directly with their insurance problems and to help people deal with the flow-on impacts of insurance failure. In terms of direct support, one financial counselling service we’re aware of was able to secure a cash settlement for a low-income client that was eight times what was originally offered. Community services have been there to help when insurance issues push people into homelessness, contribute to family breakdown or force people to return home when their property is still mouldy and unsafe. But community organisations are under pressure, both generally, with rising demand, and specifically, in disaster affected areas.

In summary, insurance companies need to act better, governments need to invest more in disaster mitigation to reduce premiums, and community services need to be recognised and adequately resourced to do their critical work. I thank you again for the invitation to speak here today, and we’re now happy to answer any questions.

CHAIR: Thanks very much for appearing. I understand that you’ve got a bit of a constraint, time wise—11.45 or maybe a bit later—so we won’t try and push you too much beyond what’s reasonable. I’ll start off with a couple of very quick questions and then hand over to committee members because I know they’ve got a lot of questions.

Firstly, on that issue of the attitude, of being cavalier and combative, one of the suggestions from the previous witnesses was that there needs to be better training. Do you think that goes part of the way, and is there anything else you would suggest?

Ms POPE : Yes, definitely. Training is a part of the suite of mechanisms that I think will encourage insurers to be fair and reasonable, especially when people are facing trauma. We’re talking about people in post-traumatic stress situations, and training is definitely a part of the solution. There are a number of other things that could be done as well. For example, we have suggested that a number of improvements could be made to the code of practice for insurers to really ensure that insurers are playing fair and working with their customers, rather than against them.

CHAIR: One of the issues that you’ve raised—sorry, Ms Buckingham?

Ms BUCKINGHAM: I would add that VCOSS’s members work with people that are vulnerable, people that have low literacy levels and people that live with a disability. People in the community come to a crisis like this with a range of capabilities, education levels, and abilities to navigate the system. So VCOSS strongly believes that insurers need to be trained in not just working with people that have the capacity to engage in very complex systems but also working with people that have low literacy—English may be a second language—and with the true diversity of people in the communities that have been impacted by this natural disaster. Thank you.

CHAIR: No, thank you, Ms Buckingham. That’s certainly an issue for my electorate. That’s a point that I think many people in my electorate would see as first order, dealing with insurers and then many other entities. I’ll ask one more question and then hand over to committee members.

An issue that you raised is rental costs during the building process. This is an issue that has been raised with me by some constituents, and I’m sure that’s the case with other committee members. Obviously, for someone who is going through all the trauma of a rebuild, and one that might take an unexpectedly long period of time, this can be particularly difficult. I suppose I’m just curious about the ways in which we might juggle this so it does not lead to unintended consequences—for example, if you were to have a mandated inclusion in every policy that there be full rental cost coverage for the entire building process. Presumably there might be some people who do not want that full coverage; they could potentially come up with solutions for themselves. Do you think this is the kind of thing which you might have as a default inclusion, but people might be able to opt out of it if it’s not necessarily something they need?

Ms POPE : I think you’re right; I think it is a mechanism that should be available to customers and policyholders. At the end of the day the wishes and the requests of the policyholder or customer need to be honoured and respected in the insurance process. That may mean that, under certain circumstances, things are offered to a particular person, but for whatever reason that person doesn’t want to take that up or wishes to have alternatives. I think that’s reasonable.

Ms BUCKINGHAM: I’ll just add that one message we’d really like the committee to take away from our consultation and our experiences is that the impact of temporary housing and unsafe housing is devastating to the people in these communities. Every effort by insurers, the government and the community sector to ensure people are in stable housing that is safe is a top priority because it has such impacts on people’s mental health, physical health, education and ability to participate in society. We’ve heard that people are putting their lives on hold because they have very insecure housing while they wait for their claims to be heard and their permanent housing to be restored.

CHAIR: In some contexts, that raises the question as to whether, in areas where there’s just a shortfall of housing, full stop, the government or industry or both need to figure out ways of stepping in to boost a reasonable standard of housing at short notice. I think this is something we’ve seen increasingly implemented; we saw it in Townsville recently. But my sense is this is something which a lot of consumer advocates are saying we need to look at in more depth.

Ms POPE : Yes, we would agree. There were some useful examples in Victoria of their use of modular homes—but not a lot. I think there are some innovative models that could be explored to address what is, as you have said, a very chronic housing crisis generally and in disaster affected areas specifically.

CHAIR: Great, thank you. I’ll hand over to Mr Neumann.

Mr NEUMANN: As a Queenslander, I’d like to focus on the Resilient Homes Fund. I’ll let everyone else talk about the other issues. I’m pretty familiar with that particular program. The current owners of my childhood home are getting that property knocked down and are going back to the Ipswich City Council as a result of the constant flooding there. Now, that $741 million Queensland government and Australian government Resilient Homes Fund involved applications to resilience-retrofit a property, to raise a house or to go through a voluntary buyback. Can you explore that? You recommend that that particular program be expanded to include all states and territories, and, I presume, also that it be a permanent program. Can you tell us where that worked well and why you’re suggesting that it be expanded?

Ms POPE : We would say that the resilient homes program provides a suite of tools to be used at the customer’s election, to address some of the issues which are causing insurance premiums to be so unaffordable or causing the sorts of insurance practices that we say are unacceptable. To answer your question, the idea of having a number of tools made available to communities is something we would like to see. It is something that may require a community-by-community approach, but, definitely, the idea of government coming together with state and territory governments—I note that that program was jointly funded by the Queensland government and the federal government—to discuss the range of options available and what communities want is really vital.

Mr NEUMANN: My final question before I hand over to my colleagues is on the issue of any particular barriers in that program that you might have looked at. My observation on the ground was that there were questions about the building envelope—that was the definition of eligibility—and that meant that the roof or the main structure of the home had, indeed, to have been impacted. But people’s properties, particularly in peri-urban areas or peri-rural areas, are often more than just the house. They’re often sheds; they’re often dams; they’re often structures on the property. I think that’s a potential barrier, by the way, and it needs to be broadened. But are you aware of any other barriers in the program that you think could be attended to in the design of that program being rolled out across the country?

Ms POPE : My colleague, Libby, may have more to answer in relation to your specific question. But I would say, broadly, that there are always learnings from these projects. This was the first one of its kind. There would be things that were done very well and things that could be improved next time. I think a structured process of reflection and of learning from the experiences in Queensland would be invaluable in considering how this scheme might be rolled out more broadly.

Ms BUCKINGHAM: I would add that the reason we are attracted to that scheme is that it actually provides funding and an acknowledgement that it’s not just up to the individual homeowners to mitigate against the risk of these unprecedented natural weather events; there is funding from government to support them in taking mitigation. While I’m sure there are things that we could improve on in the existing scheme, we, here at VCOSS, believe that that would make a really material difference to a lot of people that are living in high-risk areas that can’t afford exorbitant insurance premiums. It’s more of a longer term approach so that we don’t suffer the same calamity the next time there’s a severe weather event.

Mr NEUMANN: Thanks very much. That recommendation is very, very helpful I think. It’s not the same type of fund as the Disaster Ready Fund, which deals with drainage and community hubs or levees, dams et cetera. That’s a different thing. This is individual families and homes. The final aspect of that is: in the case of, say, a body corporate, where some unit owners want to sell and others don’t, one of the barriers in that program was, indeed, the opposition or objection to some unit holders or landlords selling and their not being prepared to sell. What has happened in that particular program, with your information, is that the federal and state governments have agreed to compulsory acquisition, even though this is an aspect of voluntaryism, on this particular program, to get around it. So that’s an idea that could get passed as well. Thank you, Chair.

CHAIR: Ms Templeman.

Ms TEMPLEMAN: I’m going to pick up on what Mr Neumann was asking there, just because it’s not something in New South Wales that we’re as familiar with. In terms of the retrofitting, would your expectation be that a scheme like that, if a home is retrofitted, leads to that home being more favourably considered by the insurer to allow for reduced premiums? Having invested money and done the work, should it lead to a lower premium for that home or as part of the community rating that is given?

Ms POPE : Yes. I think we would say that we agree with that proposition and it should mitigate against rising premiums because, if your house is more resilient and resistant to flooding and other natural disaster risks, then it follows that the insurance premium should reflect that.

Ms TEMPLEMAN: That is not necessarily what we see when it applies to bushfires, where there are rules around how resilient your home has to be when you rebuild. We don’t necessarily see that translated into lower premiums, because of the actual cost of the rebuild and then, in future years, if it did burn down again, the cost of rebuilding that. So I think this is going to be a really interesting thing to explore—what our expectations as a community are about the consequence of certain measures that are taken and then how the industry seeks to use that, whether it’s to mitigate its own costs or to ameliorate the effects of high premiums for us. Thank you for raising that. I know we’re really tight on time, so there is one other thing I wanted to ask you: you’ve made the comment about the percentage of homes that were underinsured or uninsured and how that’s going to rise. In terms of those who are not insured—what do you see as the safety net for uninsured homeowners?

Ms POPE : I think, regarding those uninsured homeowners, there’s a role for government here to explore insurance affordability for low-income homeowners, whose premiums are just untenable and who are, as I mentioned earlier, struggling, really, to put three meals on the table for their families. Insurance premiums feel like a nice-to-have and not a must-have. So I think there is more work to be done here on insurance affordability more generally at the low-income household level.

Ms TEMPLEMAN: You mentioned in your submission that you’re seeing some people lose their insurance while their claim is being processed. What I’ve been seeing in the Hawkesbury region is people being able to maintain insurance generally while the claim’s being done but then the next year’s insurance premium is either exorbitant or not offered.

Ms POPE : Yes.

Ms TEMPLEMAN: Thank you. What you’ve given us is really valuable. It’s good to hear from the Victorian perspective.

Ms POPE : If I could just make a general comment around what you’ve described there, insurance premiums are one of a number of pressures on families and households who are also simultaneously dealing with rising mortgage payments and rising costs of living. This escalates and compounds as well, and the flow-on impacts of that include poorer mental health, disconnection from schooling and all those other social problems that our sector helps with every day. When you cumulatively look at the picture of what’s happening for households in flood affected areas, it’s really quite significant.

Ms TEMPLEMAN: Thank you.

CHAIR: Mr Gee.

Mr GEE: Thank you very much for your submission and also for your evidence. I know there are tremendous time constraints on you, so I’ll try to be reasonably brief as well. I was just reflecting on the opening remarks that you made about the power imbalance between policyholders and insurance companies. For the benefit of folk who are listening at home, and also for the committee: how vulnerable are people, residents and community members after a major catastrophe or disaster like a storm or flood event?

Ms BUCKINGHAM: Thank you for this question; I think there’s a real range of vulnerabilities. Some people have the financial and social means to recover more quickly than others. Through our consultations and our work with our members, one thing which has come through really strongly is that people who are isolated and who do not have as many social connections are increasingly vulnerable, as are people who might have English as a second language or who have recently arrived in the region. They also experience certain vulnerabilities. They have a lot of strengths, but the scales are really tipped against them in navigating the insurance system.

What we see then is that the power imbalance is where the community services sector really steps in. If people who may be of low literacy, for example, or who may be living alone or who are elderly can access a financial counsellor or legal support then they’re much more equipped to travel through this process, which can be very combative. That’s where we see a bit of the power balance evened out a little bit. But many people who don’t have access to those supports are very vulnerable to just accepting the first offer—accepting what the insurance company says at first blush. They never even enter the process of review or complaints-processing.

Mr GEE: I’m from the Central West of New South Wales and I have constituents who are still deeply traumatised from the storm and flood event of November 2022. The way that I see it for many of my constituents is that this has been the most traumatic experience of their lives. Many have lost everything: home, contents. Some have lost businesses—everything. It’s complete and utter devastation; of course it puts a tremendous strain on their finances, especially if they’ve had an insurance knockback. It’s also on their relationships as well. I find that the constituents are very vulnerable—extremely vulnerable. I was interested in your opening comments about the insurers pushing back until a person gives up and that they pressure customers to accept a cash settlement. Are we talking about lowball offers here—low offers and pressuring them to accept those, possibly by dragging out claims? Is that what you were talking about there?

Ms POPE : Yes. You’ve also heard some excellent evidence from the consumer advocates who presented before us this morning about some of those insurer practices and tactics which are just simply unfair and, often, legally unreasonable.

Mr GEE: I guess that’s why you said in your submission that, basically, the insurance code of practice needs to change and needs to be amended—right?

Ms POPE : That’s correct. Yes, we think there are a number of improvements which could be made to the code, and we’ve listed some of them in our submission. But generally there’s a system in place already today, as was mentioned earlier, to hold insurers to account for their own commitments and to their own good practice. If those commitments are robust and properly adhered to, and if there are proper avenues for complaint, then that certainly creates a fairer system for people who are engaging with the insurance industry. But we would like to see a lot more best practice up-front and a lot less reliance on adversarialism or complaints processes to get what we would often see as just a fair deal.

Mr GEE: An example you mentioned in your submission relates to cash settlements. If you look at the code of practice, under clause 79 it says this:

If we offer a cash settlement under a homebuilding policy, we will provide you with information to help you understand how they work and how decisions are made on cash settlements.

That’s it. It’s not really adequate, is it?

Ms POPE : We think there is room for improvement in the code.

Mr GEE: Okay.

Ms BUCKINGHAM: Just on cash settlements, we have heard evidence of people accepting cash settlements that are not sufficient for them to fully recover. What it also does, and I think you would have heard this from the consumer advocates this morning, is shift the responsibility, the accountability, the mental load of a rebuild onto an individual when they are at their most vulnerable and traumatised. We can all work for better outcomes for those individuals that are left with a cash settlement that’s not sufficient and the incredible challenge of rebuilding in this environment.

Mr GEE: I guess the pressure to take a cash settlement increases if the alternative is paying for a solicitor, a building expert and a hydrologist to take on an insurance company who has all of those things.

Ms BUCKINGHAM: Exactly. And time. I have a quote here from somebody we met in Echuca: ‘I am just tired.’ People are being worn down until they make decisions that are not in their best interest and not in their community’s best interest.

Mr GEE: Thank you.

CHAIR: Thanks, Mr Gee. There were obviously many more questions the committee could have asked you. We may come back to you with some questions on notice but thank you very much for your time today and also for the very thoughtful submission that you provided to us. The committee secretariat will contact you in relation to any matters arising out of today’s hearing. You will be sent a copy of the transcript of your evidence and will have an opportunity to request corrections to transcription errors. And thanks for extending the time a bit beyond what I suspect was ideal at your end. That was much appreciated.