ASIC’s cash settlement review
ASIC review confirms what financial counsellors see every day: cash settlements can short-change disaster survivors
Financial Counselling Australia (FCA) says findings released today by ASIC confirm what financial counsellors have long seen on the ground: cash settlements can leave homeowners recovering from disasters worse off, not better off.
An ASIC report out today shows cash settlements are now a significant feature of home insurance claims, with at least 63% of final home insurance claims involving a full or partial cash settlement. For Cyclone Jasper, two of the five insurers reviewed used cash settlements in more than 80% of claims.
“A cash settlement can look like the quickest pathway forward after a disaster, but it can also transfer significant financial and practical risk from the insurer to the person who has just experienced the disaster,” said Louise Hayes, Coordinator, Disaster Recovery at Financial Counselling Australia.
If the settlement does not reflect what it will actually cost to repair the home in the local market, that shortfall can become another financial problem the household has to carry through recovery.
“Cash settlements should not become the next disaster for homeowners,” Ms Hayes said
ASIC also found consumers were not always given enough information to make an informed decision about accepting cash, including insufficient explanation of what the settlement covered and their rights if they disagreed with the offer, changed their mind, or later discovered further damage.
“People are often being asked to make significant and complex financial decisions at one of the most difficult points in their lives. Providing information is important, but insurers also need to consider whether the person genuinely understands the consequences of a cash settlement and has the capacity and support to manage what comes next,” Ms Hayes said.
The findings are particularly concerning for people experiencing vulnerability following a disaster. ASIC found shortcomings in how four of the five insurers applied their vulnerability policies and stressed that a consumer’s individual circumstances can increase the risks associated with accepting a cash settlement.
ENDS
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About Financial Counselling Australia
Financial Counselling Australia (FCA) is the peak body for the financial counselling profession in Australia. Financial counsellors provide free, independent and confidential advice to people experiencing financial difficulty, including those recovering from natural disasters.