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ICA reviews use of wear and tear exclusion

The Insurance Council of Australia (ICA) is reviewing findings from an inquiry that the Code Governance Committee (CGC) says indicate possible “systemic issues” in insurer claims decisions when wear and tear is a factor.

The ICA and its members have identified this as a priority area for focus, an ICA spokesperson told today.

The inquiry found that of a sample 42,956 denied home insurance claims examined, the majority (55%) relied on wear and tear/maintenance exclusions – a “concerning” trend indicating there “may be underlying systemic issues in decision-making from insurers”. 

The CGC was also “alarmed” that when over 10,000 policyholders complained about the denials, half of the decisions were overturned in favour of the consumer.  

 “The ICA recognises the important role the CGC plays in identifying and offering recommendations to the sector and is reviewing the report’s insights and findings in detail,” the spokesperson said. 

“The Insurance Council notes the report identified issues around maintenance and wear and tear exclusions in some claim decisions. This report provides valuable learnings for consideration.”

The ICA also said it was “pleasing” that the report gave some examples of good practice, including one of an insurer using common themes identified in complaints feedback to improve communication with customers on claims denials.

Brokers said today they were aware of clients affected by the exclusions. 

Arma Insurance Brokers Hunter Valley MD Amanda Morris says the issue has come to a head because of a sudden crackdown by insurers without forewarning.

“I don’t argue that insurers should have to pay – the onus should be on clients with property maintenance, but it never has been. Now it’s been completely changed to say ‘We want this now’. They are backflipping and clients aren’t used to it. 

“It is really contentious in our industry. The behaviour of insurers is causing mayhem, it is frustrating,” Ms Morris said.  

While insurers do appear to be “hiding behind” these exclusions, she says all sides need to “take on the heavy lifting” to fix the issue.

"Insurance will be unaffordable if lazy claims like broken roof tiles continue to be paid. There is a happy medium.” 

Safe Hands Insurance Group MD Phillip Carr says he has faced many instances of maintenance claim denial.

“The wear and tear exclusion is incredibly hard to refuse because everything is damaged through wear and tear. It's deliberately vague because the more vague it is, it gives the insurers more wiggle room,” Mr Carr said.

The CGC said the inquiry uncovered "issues that we cannot ignore” and insurers “must get on top of this.”

It urged that claim assessors “carefully consider a range of factors in assessing a claim with the aim of coming to a reasonable, fair and sound decision.”

The report also said heavy insurer reliance on advice from builders, plumbers, electricians and other tradespeople they appoint raised a question about their “quality and impartiality”.