Insurers are increasingly under fire for relying too heavily on wear and tear exclusions to deny claims – and one example is a growing concern for brokers and their clients.
First came a report from the insurers’ Code Governance Committee, which revealed 55% of denied home insurance claims were turned down on the basis of maintenance or wear and tear exclusions. When consumers complained about denials, half were overturned in their favour.
Then the corporate regulator raised similar concerns last week in its report on insurer claims handling. ASIC said insurers need to do more to explain wear and tear exclusions and “be careful to ensure that terms do not impose overly broad and open-ended obligations that amount to unfair contract terms”.
The Insurance Council of Australia is assessing both reports, and says the review of flood claims it commissioned from Deloitte will provide further learnings.
But in the meantime, a perennial concern has taken on new significance for brokers and clients, acting as a neat encapsulation of the wear and tear issue.
Flexihoses: those meddlesome tubes that link water pipes to sinks, toilets, dishwashers and washing machines. Usually consisting of rubber pipes surrounded by braided stainless steel, they are ticking timebombs that can burst suddenly, leading to serious damage, particularly in multi-storey properties.
The threat is hard to overstate. Some insurers estimate that more than 20% of home water damage claims can be blamed on flexihoses.
And it’s nothing new. Insurers have issued public warnings to customers that they need to keep a close eye on their hoses, look out for any signs of degradation and be aware that they have a limited lifespan.
But what is new, according to increasingly loud industry chatter, is a growing propensity for flexihose claims to be denied on the basis of wear and tear.
“Building estimators are starting to knock back burst flexihose claims for a certain insurer,” a LinkedIn post warned.
“The certain insurance company is using the rust clause in their PDS. Flexi lines that have burst due to rust are not covered and this has been more enforced since last year. It has caused some major concerns with a lot of trades and insureds,” adds another commenter.
“We have found of late that one insurer that shall not be named has a flexihose protocol,” a broker writes.
The insurer being talked about is Suncorp. Back in March it published a piece on its website warning about the dangers of flexihoses, and that claims might not always be paid.
“Half of Australians incorrectly believe that if their home was flooded or damaged by water as a result of a burst flexihose, if the hose wasn’t properly maintained and showed signs of wear, tear, rust and/or corrosion, that their insurer would still cover the cost of all repairs and replacements,” the piece said.
“Most insurers will not cover damage caused by burst flexihoses that have not been maintained.”
Suncorp says it assesses each claim on its merits. While applying a wear and tear exclusion to a burst hose might be appropriate in some cases, insuranceNEWS.com.au is not aware of other insurers going down this track on a regular basis – partly because it’s hard to prove that the wear is the cause of the failure.
The Australian Financial Complaints Authority (AFCA) recently ruled in favour of a consumer for this very reason.
Suncorp had denied a claim for a burst hose under a bathroom sink, arguing that it was not liable for resultant damage as the hose failed due to gradual rust and corrosion over time, which is excluded.
AFCA accepted rust was present, but decided Suncorp had not proven that this caused the hose to burst.
“The panel is not persuaded the mere presence of rust on the outer braided layer is enough to establish it is the proximate cause of the loss,” the ombudsman writes.
“The panel notes that flexible hoses are known to burst or fail for multiple reasons regardless of the presence of rust.”
The claim will be paid.
Another reason that there’s discomfort over denying flexihose claims is that insureds are not generally aware of them, or what they should do to maintain them.
“Most people don’t know what a flexihose is,” Financial Rights Legal Centre Policy and Advocacy Officer Drew McRae tells insuranceNEWS.com.au.
“It’s one thing to have a clause that requires you to maintain your house, it’s another for someone to know what that means.
“The broad nature of this clause has been called out by ASIC in its report. The flexihose thing is a really good example of things people don’t realise exist.
“They are hidden under a sink where most people don’t look. You need to apply a fairness standard here and some common sense.
“If there’s giant rusted holes in your roof, then yes, ok, that’s obvious. But something that people don’t have a good understanding of, like a flexihose, I don’t think insurers can just blanket deny these claims.”
A Suncorp spokesman told insuranceNEWS.com.au that the insurer does not have a “standard approach” to flexihose claims.
“All claims are unique and are accepted or denied based on the assessment of their own facts in accordance with the terms of the customer’s policy,” the spokesman said.
“We work closely with AFCA to understand its decisions on claims and what this means for our customers.”