Thousands of people with side businesses could have the wrong home insurance, experts say
Thousands of Australians with side businesses or leisure businesses may have unknowingly purchased home and contents insurance that leaves them essentially without cover.
- An ABC investigation earlier this month found that policyholders with home-registered ABNs may not be covered
- A regional Victorian couple have had their home insurance policy canceled because they store a food truck on their lawn
- The Australian Financial Complaints Authority says people should file a complaint with the ombudsman if they cannot resolve the issue with their insurer
Several people have announced the immediate cancellation of their policies after an ABC investigation into a failed insurance claim at a farm in Heywood.
Griffyn Branagh called her Suncorp-owned insurer AAMI last week to check whether her mobile bike repair business was affecting her contents insurance for her rented house in Torquay.
Before the pandemic hit, Mr Branagh used to go to people’s homes to repair bikes, but started collecting them and bringing them back to his garage in 2020.
He was told that his inventory insurance would be terminated by the insurer because his business was high risk.
A spokesperson for AAMI said the company’s home insurance policies were priced based on the risk of a domestic private home and when a business was run from a home, that risk could change “significantly”.
“We release customers’ answers to our policy screening questions — which include questions about running a home-based business — and ask them to confirm their accuracy,” the spokesperson said.
Mr. Branagh paid $10,000 a year for separate commercial insurance and was a client of IMAA for 15 years.
“We started the business not realizing that we weren’t allowed to, no one ever asked us about it,” he said.
“It wasn’t until we saw the story last week that the light bulbs went out and I thought ‘Holy shit, we’re in trouble’.”
Mr Branagh said he called several other major insurance companies, none of which would insure his contents due to the cycling activity.
“Insurers have the right to decide what level of risk they will cover and how to price it,” said Consumer Action Law Center executive director Gerard Brody.
But experts warn that thousands more could be affected.
“It seems very systemic,” Brody said.
“If you took out an insurance policy and there was some kind of misrepresentation, or if it was a policy that would never cover you, there is probably a claim to recover your premiums because the policy was effectively junk.”
Mr Brody said he would encourage the insurance industry to ‘look at the fairness of what they are doing and come up with a better solution for their customers’.
Food truck leads to insurance termination
Dean and Caroline McLaren paid $4,500 a year in premiums with CGU, owned by Insurance Australia Group, for home and contents insurance for their regional Victorian home for 20 years.
Last week, Mr McLaren was also told his policy would be canceled immediately as the food truck the couple had operated for five years was registered at their home.
“We weren’t trying to claim the food truck at all, we have separate commercial insurance for that,” he said.
“It wasn’t something we tried to hide. It never occurred to me to tell them.”
A CGU spokesperson said the company’s policy was “not designed for customers who run a home-based business, for example, commercial cooking in the home kitchen, where there may be a increased risk of accident due to the work undertaken”.
They said customers were required to let the company know if there were any changes that would “impact the range of risks on their property, such as running a home-based business” and that it informed “customers of this requirement and its importance when entering into a contract and when receiving their contract renewal documents”.
No part of the business was run from their home, other than the occasional chopping of vegetables.
Mr. McLaren said a company representative at CGU did not ask about the food truck, or what, if anything, was part of the business, was run on his property.
Because the insurance agency canceled the policy, the couple were given two weeks’ notice to find coverage with another company.
“I asked them: what if the house burns down in the next two weeks? Will we be covered?” he said. Mr McLaren said he had not received a response.
He also said CGU told him it was part of the couple’s “duty of disclosure” to talk to the food truck business.
But a change in October last year to the Insurance Contracts Act means advocates argue that’s not entirely accurate.
The royal commission changed the law last year
As a result of the Royal Commission into the Financial Services Industry, the disclosure requirement for consumers was relaxed and insurance companies were required to ensure their customers were aware of what they had to disclose.
The change means consumers now have a “duty not to mislead”, which means they must take reasonable care to answer questions correctly, but do not necessarily have to voluntarily provide information.
A spokesperson for the Insurance Council of Australia said there were “many insurers offering many home and contents insurance policies”.
“Each insurer uses different underwriting criteria, and therefore products may differ in coverage offered and cost,” the spokesperson said.
They said the insurer would explain what a customer’s disclosure obligations were.
Hayriye Uluca, senior solicitor at Maurice Blackburn, said the issue could fall under unfair contract term protection if an ordinary consumer was “in a weakened bargaining position”.
Only a court can determine whether a contract term is unfair. According to ASIC, a contract term could be considered unfair if it results in a significant imbalance in the rights and obligations of the parties under the contract, is not reasonably necessary to protect the legitimate interests of the party who would benefit from the term, and would cause harm to the consumer if it were to be enforced or invoked.
Ms Uluca also said that if a customer was denied an insurance claim based on their underwriting material, consumers should have the right to see the risk policies underwritten.
Emma Curtis, the Australian Financial Complaints Authority’s chief ombudsman for insurance, said customers should file a free complaint with the ombudsman if they could not resolve the issue with their insurer.