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Suncorp tried to buy out fire insurance claims for $150k below quotes

Fire-damaged buildings at Wye River, on Victoria's Great Ocean Road, after the 2015 fires.

Fire-damaged buildings at Wye River, on Victoria's Great Ocean Road, after the 2015 fires. Photo: AAP

Insurance giant Suncorp tried to low-ball customers who had suffered losses in Victorian bushfires in 2015, offering more than $150,000 under the replacement cost of destroyed buildings, the financial services royal commission has heard.

Chief executive Gary Dransfield admitted to the royal commission on Thursday that Suncorp’s approach of buying out insurance claims following the 2015 Wye River fires meant many people were offered sums well below quotes to rebuild.

In one case, Suncorp offered $499,000 to buy out a claim when the customer had a quote from a local builder for $659,000. A second quote, obtained by the insurer, was for $862,000.

Counsel assisting Rowena Orr QC asked Mr Dransfield whether he thought Suncorp had acted in a way that would allow its customers to “properly complete all necessary repairs”. Mr Dransfield said he thought it had, and that settlements were often made at prices higher than the company’s initial offer.

He also admitted that some claims had taken a long time to settle after the Wye River fires in December 2015. Ms Orr said only 13 of 60 claims lodged had been finalised by April 13, 2016; 46 remained active.

The delays prompted local federal member of parliament, Sarah Henderson, to intervene. She made a speech on the issue and published it on her website.

Among the issues Ms Henderson raised was Suncorp’s underquoting for rebuilds.

“Yes, the member of parliament did intervene,” Mr Dransfield said.

After that, ASIC became involved.

“ASIC expressed concerns about elements of the claims process, particularly around the cash settlement outcomes for those with
complete replacement cover policies,” Ms Orr said.

ASIC found that Suncorp subsidiary AAMI had insisted on offering cash payouts, despite many customers wanting rebuilds paid for by the insurer.

Mr Dransfield said that he didn’t think ASIC had had detailed conversations with AAMI clients about their claims: “I’m not sure that ASIC physically spoke to anyone.”

When Ms Orr persisted, he said “I can’t, can’t categorically say they didn’t speak to anyone”.

Mr Dransfield said he did not know what percentage of complete replacement claims AAMI had settled with cash payouts. In response, Ms Orr pointed to ASIC’s report, which said: “the vast majority of total loss claims made under the complete replacement cover products are cash settled.”

ASIC eventually fined AAMI a total of $43,000 for misleading claims in its advertisements. The commission heard the company’s annual income from premiums for complete replacement cover had been $420 million for the past few years.

“AAMI’s complete replacement cover is meant to take all the worry away,” Ms Orr said. “In its promotional material, it states, ‘If your home is damaged or destroyed by an insured event, we will repair or rebuild it, no matter the cost to us’.”

That advertising material was used before the Wye River fires. Ms Orr also outlined a 2016 campaign that made similar claims.

“The clear message of all this advertising material, both before and after the Wye River bushfires, was that AAMI would repair or rebuild homes covered by the complete replacement cover product, no matter the cost to AAMI?” she said.

“Yes,” Mr Dransfield said.

“That wasn’t correct, was it?” Ms Orr said.

“It’s certainly incomplete,” Mr Dransfield said.

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