Stop hiding behind ‘wear and tear’ excuses, FCA tells insurers

Insurers must stop misusing “wear and tear” or lack of maintenance as a reason for denying property claims, Financial Counselling Australia (FCA) says.

FCA, the peak body for financial counsellors, was responding to a report by the General Insurance Code Governance Committee (CGC) which found “too many insurers” were using wear-and-tear clauses to avoid paying out claims. It also found that denials based on such clauses had become an “emerging issue” in the sector.

FCA’s Co-ordinator for Disaster Recovery Peter Gartlan said the CGC, which comprises a mix of industry and consumer representatives, found more than half of the denied claims were based on maintenance or wear-and-tear exclusions. Worryingly, nearly half of these denials were later overturned in favour of the consumer, the report found.

“We’re seeing insurers increasingly using wear and tear or lack of maintenance as a reason for not paying out, and yet there is no reason why this should be on the increase – apart from insurers simply avoiding their obligations,” Mr Gartlan said.

“In disasters – which we’ve seen a lot more of in recent years – people are not just severely impacted directly by the disaster but can then find themselves unable to repair their houses due to the insurer alleging ‘lack of maintenance’, essentially falling back on some very fine print in a Product Disclosure Statement.”

An example might be denying a storm claim by claiming a roof was not properly maintained, or partially denying a flood claim alleging the house’s stumps were rotten, he said.

“The question is then, realistically how many insurance customers are up on roofs or crawling around under houses to check the integrity of their roof or stumps in the event they may have to claim? The onus here must not rest solely with the consumer.

“This was also backed by the committee which expressed concern that ‘so many claims were incorrectly denied on the basis of wear-and-tear or maintenance exclusions’, pointing to ‘underlying systemic issues in decision-making from insurers when wear and tear is a factor’.”

In light of the CGC findings, FCA recommends that:

• insurers provide clear information on what a homeowner is reasonably expected to do to keep their home maintained
• in the event of a claim, the insurer provides and pays for an independent expert report for consumers, if required

Media contact: Mike Bruce 03 8554 6878 or [email protected]