Show me the money: When is a cash settlement in the client’s best interest?
The Hayne Royal Commission has brought to light many different topics related to our industry. Our view is always that open discussion about these things is healthy and if done right, it will help us to grow as an industry and deliver better outcomes for our clients. In the coming weeks we will touch on a few of the other topics from the Royal Commission more broadly so that our clients understand some of the key take-aways from this.
Before we get to that, a key insight was raised in relation to insurers giving ‘cash settlements’ to finalise property damage claims. Suncorp in particularly were interrogated at length about their practice of giving cash settlements in certain circumstances and it was implied that they were doing this against the client’s interest – and maybe they were.
To clarify, a ‘cash settlement’ is an instance where an insurer will offer to pay the policyholder cash rather than assist them with sourcing the replacement items or coordinating the repair works. From our perspective, there are two circumstances where a ‘cash settlement’ is against a client’s interest:
Where the insurance company is offering the cash so that they can absolve themselves of any responsibility in assisting with managing the claim (and the all-important warranty that comes with the work when they arrange it); and
Where the insurance company is offering to ‘cash settle’ a claim based on the amount it would cost THEM to repair/replace the damaged item despite the fact it would cost significantly more for the policyholder to do so.
Where an insurer does either of these things, this is unacceptable conduct and is certainly a breach of their duty of Utmost Good Faith to the insured as well as numerous Code of Practice provisions. However, we shouldn’t throw the proverbial baby out with the bath water… A cash settlement can often be the best outcome for everybody. For example, an insured may want to replace certain contents items at their leisure and not be bound by negotiating with the insurer for every purchase. There are also times where policyholders will be able to negotiate better deals or carry out aspects of work themselves. Put simply, sometimes people would just rather have the money.
As always though, this is where the role of the broker comes in. When it comes to cash settlements, we always have a frank and open conversation with our clients about the pros and cons of each option. When we’re talking about contents, plant and equipment, we make sure the proposed cash settlement will actually be adequate to replace the items. Where the claim is for property damage and a builder is concerned, our clients always make any decisions fully aware of any guarantees or warrantees they may use. Our first advice is always not to give these up – but at the end of the day, it’s all about personal choice.
Overall, the decision as to whether to accept a cash settlement should never be made under duress of the insurer and an offer should NEVER be accepted which wouldn’t actually put you back in the same position you were in prior to the loss. However, sometimes even noting all this, an insured may just want to take the cash and walk away and the fact is, that’s their choice and where they feel that’s the best outcome we will be with them every step of the way.
If ever there’s a situation where you or someone you know is uncertain whether a cash settlement is the right outcome, get in touch and we will be happy to assist.