Should you accept a cash settlement from your insurer? ASIC says no
Key takeaways
- ASIC has raised concerns that home insurers are settling claims with cash payouts that may not cover the true cost of repairs, after finding at least 63% of finalised home claims involved a cash settlement.
- Insurers often based those offers on a single quote from a preferred supplier where most settlement fact sheets didn't explain how the amount was calculated.
- What's next: If you're offered a cash settlement, you don't have to accept on the spot. There are other actions you can take.
If you're in the midst of a home insurance claim and your insurer offers you a lump sum to handle the repairs yourself, it's worth conducting your own research just to be sure.
A recent investigation by ASIC has warned these cash settlements may be leaving several home owners short, forcing them to cough up the remaining costs themselves.
The regulator found that at least 63% of finalised home insurance claims related to Cyclone Jasper in 2023 involved a cash settlement, raising questions about whether the amounts being offered are sufficient.
"The easy option for insurers can be the expensive one for homeowners," said ASIC's commissioner Alan Kirkland.
"If the amount falls short, consumers can be left shouldering the cost of repairs and paying the difference out of their own pocket."
Why would insurers offer a cash settlement to customers?
When you make a home insurance claim, there are broadly two ways it can be resolved.
The insurer can manage the repairs itself with its own contractors and covering the cost as needed, often with a lifetime guarantee on the workmanship. Or it can pay you a lump sum, a cash settlement where you organise the repairs yourself.
A cash settlement can suit homeowners who want control over their own repairs. However, it also shifts the risk onto you.
If the money doesn't stretch far enough, the remaining amount is yours to cover. You also take on the job of finding reliable tradespeople, which is a skill itself.
Want better home insurance?
Start comparing
Homeowners left in the dark
One of the primary reasons ASIC was concerned about the number of cash settlements handed out was the lack of explanation that came with them.
When an insurer offers a cash settlement, it's required to give you a Cash Settlement Fact Sheet so you can make an informed decision.
ASIC found that while insurers did provide these, most didn't explain how the settlement figure was reached.
"We think insurers can do more to help consumers in those circumstances, such as by sourcing quotes for the pre-existing damage and helping to coordinate the overall repairs," Kirkland said.
"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."
How to protect yourself if you're offered a cash settlement
You're not obliged to accept a cash settlement on the spot, so take the time to check the number actually stacks up.
Ask your insurer how the figure was calculated and get your own independent quotes for the full scope of work before you agree to anything.
If the settlement falls short or the insurer is only covering part of the damage on maintenance grounds, push back on the decision and escalate the matter to AFCA if you're not satisfied.
Find out if your home insurance policy could do with a refresh by comparing it against current offers in the market.
Ask a question