The corporate regulator has questioned the fairness of insurers’ cash settlement practices after a review indicated the payments have left home policy customers worse off.

One major concern relates to the way such payments are determined, according to the Australian Securities and Investments Commission.

Insurers often rely on quotes from preferred suppliers to decide on cash settlement offers, the commission says. This has raised concerns over whether payouts are enough to cover the cost of repairs.

More than half of cash settlement offers for home claims arising from Cyclone Jasper in 2023 were based on a single quote.

“If the amount falls short, consumers can be left shouldering the cost of repairs and paying the difference out of their own pocket,” ASIC commissioner Alan Kirkland said.

He says for many homeowners, accepting a cash settlement can mean taking on the responsibility of finding tradespeople, overseeing repairs, dealing with unexpected costs and navigating issues that would otherwise be handled by their insurer.

The review examined Cyclone Jasper home claims and insurers’ broader cash settlement practices, and any improvements made since.

Insurers examined were IAG, Suncorp, QBE, Allianz and Sure Insurance.

In other key findings, about 63% of home claims reviewed involved a full cash or partial cash settlement; one in four claims were fully or partially cash settled due to pre-existing maintenance issues; and four of five insurers failed to adequately support vulnerable customers.

All insurers noted their preference for settling claims by managing repairs or rebuilding rather than with cash, but the data suggests otherwise, according to ASIC.

“The easy option for insurers can be the expensive one for homeowners,” Mr Kirkland said.

ASIC also found settlement amounts could increase significantly after a consumer lodged a complaint, raising concerns about the fairness of some initial offers.

“Consumers shouldn’t have to fight for a fair settlement. Australians have a right to expect a fair offer from the start,” Mr Kirkland said.

The industry says it is committed to fair customer outcomes and people must have clear information on cash settlements.

An Insurance Council of Australia spokesperson says a cash settlement can provide flexibility for customers, giving them speed, choice and control over their own repairs, including the ability to prioritise urgent fixes and decide how funds are spent.

“There has been significant industry uplift since Tropical Cyclone Jasper, with a focus on making sure cash settlements are clearly explained and understood,” the spokesperson said.

Click here to read ASIC's report.