Widespread underinsurance issues are blowing out claims timelines as insurers are increasingly forced to investigate whether payments need to be reduced, Insurance Advisernet MD Shaun Standfield says.

insuranceNEWS.com.au has reported on several recent Australian Financial Complaints Authority disputes relating to underinsurance and average clauses – which can allow an insurer to reduce a claim payment if the sum insured is less than 80% of the asset’s true value.

Mr Standfield says underinsurance is more prevalent following years of challenging conditions for clients, and brokers need to be alert to the problem.

“We’ve been through years of inflation, coupled with a hard market, and so it was very hard to get clients to increase their sums insured during that period,” he said.

“And now we’re seeing the results of that. There are a lot of clients out there underinsured on values, and when a claim comes in, insurers are going, ‘Hang on a minute, there’s no way that’s correct.’ ”

Mr Standfield says it is understandable that insurers may want to investigate, which can delay the progress of a claim and lead to disputes. 

“Brokers need to take some responsibility by telling their clients to get a new valuation,” he said. “If they refuse, that’s fine, they’ve made their decision. But we need to draw their attention to the issue, including the potential impact on claims payouts and timelines.”

Mr Standfield says indemnity periods for business interruption claims should also be considered.

“Where a 12-month BI period may have been acceptable a few years ago, it’s probably not adequate now due to more regulatory red tape and other considerations that impact rebuilding assets lost in an insured event.”

From the latest Insurance News magazine: Is NIBA really "sidestepping the issues" with its response to the broker code review?