Allianz has become the first general insurer to be hit with a financial sanction for a code of practice breach, with the issue relating to the handling of a claim from the February 2022 flood catastrophe. 

The governance committee has ordered the insurer to make a community benefit payment of $50,000, using sanctioning powers introduced in the 2020 code update. 

Allianz had assessed that inundation at a property was due to floodwater, not rain or run-off, based on several documents including a hydrologist report. It declined the policyholder’s claim because they didn’t have flood cover. 

The General Insurance Code Governance Committee says it investigated after receiving a referral alleging two properties in the same neighbourhood received a different outcome from Allianz even though their policies also excluded flood.  

Allianz reviewed the case, expanded the scope to include an additional 47 claims linked to the catastrophe, and subsequently accepted five previously denied claims in part or full. It also changed its decision on the disputed matter affecting “policyholder A” to partially accept it.  

“We determined that Allianz significantly breached its obligation to consider all relevant facts when assessing claims. This obligation is set out in paragraph 69 of the code,” the code committee said. 

The committee says Allianz’s failure to identify inconsistencies in the hydrology report, together with the absence of effective controls and processes to mitigate the risk of inconsistent claims decision processes, constituted a significant breach. 

In addition to the sanction, the insurer paid out $216,807 for policyholder A’s claim and another five claims on which it changed its decision. 

“Allianz has since implemented improvements in its claims handling processes, ranging from expanded resourcing of its claims staff to an external review of its claims handling model,” the code governance committee said. 

“Allianz is also exploring the use of technology to provide a more automated solution to provide greater visibility of claims outcomes by location.” 

The insurer says on its website that it acknowledges the code committee’s determination, and notes it received more than 31,000 claims arising from the February/March catastrophe. 

“At Allianz, we are committed to ensuring that our customers are supported and protected, especially in challenging times such as when making flood-related claims,” it says. 

“We are actively engaging with the [code committee], the Australian Financial Complaints Authority and the Insurance Council of Australia to consider the broader industry implications and practical implementation of the [committee’s] determination, particularly as it relates to the use of hydrology reports.” 

In its statement, Allianz says it made “a commercial decision” to pay the claims. Such wording is usually used when an insurer retains a belief that a claim should not be paid but makes a commercial decision to do so.