The report found insurers were making "onerous, unexplained and successive" requests for information including criminal record checks, social media histories, birth certificates, telephone and text message records, financial statements and information about family members and friends. It also found they were providing inadequate support for people without sufficient English literacy.

In one case study, a customer was made to wait nine months without a car while his claim was investigated, forcing his wife to pick him up from his night shift job. In another, an investigator asked to examine a customer's mobile phone, without explaining why. ASIC said practices like this were a cause of unnecessary stress to the customer.

"Fraud is a serious issue. Insurers need effective systems to detect, investigate, decline and deter fraudulent claims," said ASIC commissioner Sean Hughes.

"But we found insurers are putting a significant proportion of consumers through a harmful and unreasonable process, even where their claims are ultimately paid.

"When it comes to insurance, consumers should expect and do deserve better. Consumers deserve a fair process for investigated claims. Insurers must live up to the promise to pay on the policy where the claim is a genuine one."

ASIC said it had been engaging with the Insurance Council of Australia to improve industry standards, which "led to a proposal by the ICA for additional standards in the General Insurance Code of Practice (Code)". But the regulator said the review showed further improvements to the code were necessary.

ASIC also warned it would take legal action against insurers that broke the law, taking advantage of a change in the rules that make significant civil penalties available to the regulator under the Insurance Contracts Act. A Hayne royal commission recommendation that claims handling be treated as a financial service could give ASIC even more disciplinary powers.

Responding to the report, ICA spokesman Campbell Fuller said insurers believed most investigations were conducted "fairly and transparently".


"However, the ICA acknowledge a small number of consumers should have received better customer service. The ICA is confident that new investigation standards that will be included in an updated General Insurance Code of Practice (to be released towards the end of the year) will address key concerns raised by ASIC in its report," he said.

Alexandra Kelly, director of casework at the Financial Rights Legal Centre, said ASIC's findings confirmed her organisation's own research.

“Enough is enough. The general insurance industry needs to introduce a strong and comprehensive set of best practice standards for insurance investigations to restore trust and confidence in the insurance industry," she said.

She also called on the federal government to implement the Hayne royal commission recommendation that claims handling be classed as a financial service under the Corporations Act.