Australia's corporate watchdog is sounding the alarm over insurers' use of cash settlements, concerned they could unfairly short-change home owners dealing with a house insurance claim.
ASIC has been reviewing the industry's use of cash settlements to pay out claims since the impacts of Cyclone Jasper in Far North Queensland in December 2023.
Cash settlements provide customers with a full or part sum of money to independently handle building repairs.
It is an alternative to an insurer overseeing rectification work done by their choice of contractors and covering the cost as required.
ASIC's report found at least 63 per cent of final home insurance claims included a cash settlement, with consumers at risk of insufficient funds that do not cover the true cost of repairs.
ASIC warned cash settlements also risk the home owner experiencing the stress of finding reliable tradespeople, and could leave them with no lifetime repair guarantees.
"These findings are a real concern," ASIC's commissioner Alan Kirkland said.
Review into five major insurers
ASIC reviewed the policies, procedures, training materials and a sample of claim files from Insurance Australia Group, AAI, QBE, Allianz, and Sure Insurance.
It found most claims involved a cash settlement with little information to determine whether it was in the customer's best interests.
ASIC's review found that to determine the sum offered, insurers often relied on a single quote from a preferred supplier that was willing to offer discount pricing for the insurers in exchange for repeat business.
"That raises questions around whether the amounts that are being offered to consumers … reflect prices that the consumer could get if they go out to source repairs themselves," Mr Kirkland said.
This is the latest report by the watchdog into insurer conduct, after it conducted reviews in 2023 and 2025 into the handling of flood-related claims.
It comes as home insurance premiums continue to skyrocket, increasing by 51 per cent in the past five years.
Cash settlement offer forced pensioner to sell home
Pensioner Julia Hirning has been forced to sell her Far North Queensland home after discovering the cash settlement from her insurer was not enough to cover the real cost of works.
Flooding in January 2025 left Ms Hirning's home full of mould.
After more than a year going back and forth with Sure Insurance, she went to the Australian Financial Complaints Authority (AFCA) and her insurer offered her a settlement of $245,800.
"So then I went to a builder that I knew was well known in Townsville; he was well respected and highly recommended," she said.
"He came up and had a look, and his costings were just over $300,000 to do it and do it properly."
Pensioner doing his own repairs
After about a year of discussions with the same insurer, pensioner Leon Wuttrich said he is now completing the final repair work himself to finish fixing his home after an insufficient cash settlement.
"I've done a lot of the work, and my wife's obviously helped; I've had builders in too. But it is extremely hard in North Queensland to find builders," he said.
Mr Wuttrich was impacted by the same floods and said Sure Insurance agreed to an initial scope of works quote by one builder for $127,000.
But after the home owner engaged Legal Aid, that amount increased to about $314,000, which he said still was not enough.
"The tiler in the end that came in and did just the two bathrooms was just on $50,000," he said.
He also said the communications from Sure Insurance were "downright non-existent".
In a statement to the ABC, Sure Insurance said it "remains focused on responding to our customers' needs in each and every household claim".
An offer without an explanation
The report found insurers often offer cash settlements where claims involved pre-existing maintenance issues.
ASIC said half of the files that it reviewed involved a cash settlement due to the insurers' assessment that the consumer had not adequately maintained their property.
"For the consumer, however, that can mean that they're left in a really complex situation where the insurer is only covering part of the damage and they've then got to coordinate repairs to the other part," Mr Kirkland said.
When insurers offer a cash settlement to a home owner, they must provide consumers with a Cash Settlement Fact Sheet so the consumer can make an informed choice on whether to accept the cash settlement.
While all insurers offer a fact sheet, ASIC found most lacked an explanation of the amount.
ASIC found only one insurer could readily extract data on the reason a claim was cash settled. It also found no insurer has processes in place to systematically capture this data.
"They should provide sufficient details for the consumer to understand how the amount of the cash settlement has been calculated and what is included in that cash settlement offer," Mr Kirkland said.
In a statement to the ABC, a spokesperson from the Insurance Council of Australia said: "There has been a significant industry uplift since Tropical Cyclone Jasper, with a focus on making sure cash settlements are clearly explained and understood".
Assistant Treasurer and Financial Services Minister Daniel Mulino said ASIC's findings were an important reminder that insurers "must ensure consumers have all the information they need".
"I would hope the updated General Code of Insurance Practice sees stronger protections in this area."
Public consultation for the redrafted General Insurance Code of Practice closed in July, with the latest draft of the Code expected to be handed to ASIC later this year.
