Predatory lowball cash settlements from insurers to victims of flood damage are a serious issue, with the peak body for financial counsellors revealing underquoting is rife.

As south-eastern Australia wades through the aftermath of another weekend of destructive winds and wild weather, thousands will be looking at how to get help from their insurance company. Over the years, some have found that the standard of help wasn’t what they were expecting.

The non-profit peak body for financial counsellors, Financial Counselling Australia (FCA), whose army of more than 800 counsellors assist victims of financial hardship, compiled data from one area in regional Australia and found rampant underquoting among the 40 cases it reviewed.

FCA’s national coordinator of disaster recovery, Vicki Staff, compiled the data after witnessing lowball offers and speaking to counsellors across the country over a number of years.

She said the data confirmed what the FCA believes is a widespread practice of inadequate cash settlements. It showed that financial counsellors were able to negotiate an additional $83,182 per client, on average, across the 40 cases, or $3.3 million in total.

Almost a third of the 40 cases were initially offered nothing.

“The thing that keeps me awake at night is how many people are missing out on fair and adequate settlements,” she said. “Who don’t know help is out there.”

In one case, RACV, which is majority-owned by insurance giant IAG, initially offered its customer nothing but increased it to $396,300 after a counsellor got involved.

In another case, RACV initially offered a cash settlement of $167,000 then lifted it to $568,438.80 once a financial counsellor took over the negotiations.

IAG did not respond to questions related to the cases but issued a statement that said its focus was “always providing the highest level of support for our customers impacted by severe weather and natural disasters”. It said if a customer wished to receive a cash settlement, it reviewed the quotes obtained. “We include an allowance for unforeseen expenses and include this as part of the settlement.”

Seven months in a van

Brian and Tracy Haimes almost became the victim of an inadequate cash settlement when their insurer offered them $167,000 after their house in Rochester was flooded in October 2022. The flood was considered the biggest in the town’s history.

More than 400 megalitres of water went through their property, destroying furniture and damaging the structure. The house was unlivable.

Brian said he was about to accept the $167,000 offer but a friend advised him it wouldn’t cover the cost of the damage.

Eventually, they settled for $275,000, which they attributed to the intervention of a financial counsellor at Anglicare.

But it took 17 months to settle the claim.

“For seven months, we were living out of a van,” Brian said.

“We’ve had gold insurance cover for years and the amount of time and the frustration of waiting and not hearing and when you finally did, we just expected better,” he said.

A power imbalance for consumers

The insurance sector is awaiting the release of a parliamentary report into insurers’ responses to the 2022 major flood claims.

The 2022 floods across eastern states were some of the country’s worst. Lives were lost, injuries were caused, communities were displaced and thousands of homes were destroyed.

Almost two years on, most of the claims have been closed, as they should, but thousands are still outstanding, and behind those numbers are people suffering.

The inquiry, chaired by Victorian Labor MP Daniel Mulino, was deluged with testimony and submissions outlining some disturbing stories of customers battling insurers at one of the worst times in their lives.

Delays, denials, bullying, dodgy expert reports and inadequate cash settlements were a few of the practices aired during the parliamentary inquiry, which held hearings in Cairns, Townsville, Devonport in Tasmania, Lismore and Beenleigh in NSW, and Rochester and Maribyrnong in Victoria.

Damian Stock, the boss of ARC Justice, a human rights non-profit that operates two community legal centres in regional Victoria, outlined the power imbalance between insurers and victims at one of the hearings in February.

Stock believes the imbalance is so out of whack that the trauma some claimants suffered post the floods wasn’t caused by riverine flooding but their treatment by the insurance companies.

“The incomprehensible delays, the failure to communicate, the battle at every turn by companies that are vastly more resourced and experienced than those who sensibly purchased insurance,” he said.

Stock told ABC News that insurance companies worked for their shareholders, not their customers. “They will use every resource and dispute everything on the way to minimise payments to consumers,” he said.

In the past few weeks, the big insurance giants, IAG (which owns brands including NRMA Insurance, CGU, SGIO and holds 70 per cent of RACV), Suncorp (which owns brands including AAMI, Tyndall, Vero, Asteron and Bingle) and QBE have warned that premiums would continue to rise.

IAG reported a 7.9 per cent increase in full-year net profit to $898 million, Suncorp lifted its full-year net profit 12 per cent to $1.2 billion, while QBE reported a half-year doubling of net profit to $US802 million.

The insurers have previously blamed rising premiums on inflation and reinsurance costs. Now, they are pointing to rising construction and labour costs. Suncorp included higher repair costs from houses damaged by aging water pipes.

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Delays due to insurer actions

The FCA lodged a supplementary submission to parliament at the end of July, saying financial counsellors continued to support clients with their insurance claims two years on from the major floods of 2022.

It said when claims took longer than a year to resolve, it caused a myriad of extra problems including temporary accommodation as most additional benefit inclusions only covered the insured for 12 months.

The submission said there were several cases where claims took more than 12 months to resolve due to the insurer’s insistence that multiple expert reports be sourced. It cited one case that took nine months for the ground to dry before an expert report could be done, which created complications for temporary accommodation as the insurer refused to provide temporary accommodation beyond 12 months.

“Where it is demonstrated that the delay was due to the actions or advice of an insurer, that period should not be to the disadvantage of the insured,” the FCA said.

It seems the hardball tactics weren’t isolated to the 2022 floods. The FCA’s submission said the December 2023 floods in far north Queensland created issues related to temporary accommodation.

For instance, a 94-year-old with terminal illness and mobility issues got caught up in the floods and was put into temporary accommodation, which caused anxiety and stress as the insurer would only pay for his accommodation a month at a time. Eventually, his worst fears were realised when he had to vacate the property for a tourist.

A neighbour found him a room in a small motel that didn’t have cooking facilities, laundry facilities or cater for his mobility issues.

It is why the FCA is calling for change including allowing policyholders to request a review of their claim for up to 12 months after settlement if the claim was settled within a year of the event. Other recommendations include providing temporary accommodation for two years, on the basis it would incentivise more efficient claims handling.

In the words of ARC’s Damian Stock, the current system is working as designed. “The insurers are activating their resources to minimise payment of claims to consumers, acting in the best interests of shareholders.”