After floods devastated communities across NSW and QLD in 2022, lawyer Kirsty Evans offered free support to small businesses locked in dispute with their insurers.
Now, a parliamentary inquiry into the insurance sector calls for dozens of reforms — including a major proposal put forward by Evans herself.
Evans, a solicitor and director at Cheney Suthers Lawyers, tells SmartCompany she was inspired to help after historic rainfall hit the regional NSW centre Molong.
“I knew that the best way that I could assist my community was to lodge insurance claims on their behalf,” she says.
Cheney Suthers Lawyers helped about a dozen businesses with their claims, including the local post office and a community gym, providing about 250 hours of pro bono legal assistance.
Helping damaged businesses reopen their doors would “bring out the vibrancy of our community, and also give people a place to reconnect after such a traumatic experience,” says Evans.
But ensuring those small businesses received the right support from insurers was no simple task: policyholders battled claim denials, sluggish communication, and inconsistent decision-making.
“We knew we could assist them by lodging the claim to get the process started, and then grinding every day to get a response from the insurers,” she continues.
To consider community concerns, the House of Representatives Standing Committee on Economics launched an inquiry into how insurers handled the flood disaster last year.
It tabled its final report on Friday, detailing systemic issues and shortfalls.
Committee chair and Labor MP Daniel Mulino found “too many” insurance claims “were badly mishandled by insurers,” leaving claimants in the lurch and delaying the rebuild process.
The report’s 86 recommendations, targeted to the insurance sector and the federal government, are intended to improve claims management, increase transparency, lower premiums, and boost resilience in areas susceptible to flooding.
One of those recommendations came directly from Evans.
She says half of Cheney Suthers Lawyers’ clients struggled with underinsurance, caused by averaging provisions, leading to lower-than-expected payouts.
If a business owner insures their property for only half its real value, and files an insurance claim when the property is destroyed, averaging provisions can result in payouts worth half of its insured value.
The consequences of these averaging provisions can leave claimants deeply out of pocket.
“In one circumstance, one of our clients was penalised $50,000 on their already menial payout because of underinsurance,” says Evans.
When the committee toured regional NSW to learn more about the issue, Evans shared her concerns about averaging provisions and their effect on small businesses.
In its report, the committee recommends the federal government consider banning averaging provisions for small businesses.
“I’m extremely proud of this recommendation, because it was my own, made in submissions,” says Evans.
It would be “absolutely fantastic” if the small business averaging provisions ban is brought into effect, she continues.
In addition, the report also recommends that insurers “inform policyholders when they suspect the policyholder’s sum insured does not cover the full rebuild costs according to their calculations, both at sign-on and renewal”.
That proposed ban is one of several small business recommendations made by the committee.
It recommends the federal government open a public database of flood risk data for all households and small businesses across the country, helping them make more informed decisions.
Small business policyholders in high-flood risk areas should also face lower premiums “immediately” after taking steps to mitigate their individual flood risk, says the report.
It also recommends that insurers:
Plans to improve how insurers communicate with policyholders in the wake of a disaster are especially welcome, Evans says.
“We’ve had circumstances where denials are received in email inboxes late in the afternoon, and this is six, twelve months after the fact,” she says.
“We’ve had people claim that the effect of that was greater trauma than the flood event, because they’ve realised that safety net of insurance has been ripped out from underneath them.”
The report also calls on the federal government to:
It is now up to industry leaders and lawmakers to decide which recommendations are put in place, changing how policyholders interact with their insurers.
However, the report does not recommend the General Insurance Code of Practice, which is voluntary and overseen by the Insurance Council of Australia (ICA), be mandated under law.
Evans holds “reservations” as to how the recommendations will be enforced, given there is no specific recommendation that the General Insurance Code of Practice be mandated.
“There are a lot of recommendations to change the Code [but] so far as the Code still remains voluntary, it does significantly lose weight,” she says.
“If we already have a circumstance where we have record breaches of the Code by insurers, not going far enough this time to mandate it does [raise] concern” over the recommendations.
In a dissenting report, independent MP Andrew Gee said the Australian Securities and Investments Commission should not only approve the Code, but should oversee enforceable code provisions to crack down on significant breaches.
“We’ve worked closely with Andrew Gee throughout this process and the inquiry, and that is a strong recommendation that we would have hoped to see,” says Evans.
“We really want to see the Code mandated,” she continues.
“Because up until this day, in our experience, insurers have been deceptive and disrespectful to small businesses, and we really want this immediate action to be put in place, to stop the trauma caused by the drawn-out claims processes and poor treatment of policyholders.”
In the interim, Cheney Suthers Lawyers has developed a fact sheet for small businesses looking to protect themselves from natural disasters, and the fine print of their insurance contracts.
SMEs should:
In a statement, the ICA welcomed committee recommendations designed to lower premiums and protect vulnerable communities.
The industry group also noted the troubling stories brought to the committee by Evans and others.
“While they were small in proportion to the more than 300,000 flood claims received in 2022, the report includes too many examples of customers who did not receive appropriate service or even felt traumatised by their interactions with their insurer,” the statement read.
Andrew Hall, ICA CEO, said the industry is well aware that things went wrong.
“Insurers acknowledge there were failures of systems, processes and resourcing in response to the extreme weather events that occurred during 2022, and the industry is already taking action to address these challenges,” he wrote.
Future reforms must balance “good customer outcomes without putting further pressure on premiums will be key to successful implementation,” added Hall.
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Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
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