The corporate watchdog has vowed to take action against companies doing the wrong thing and has "harmful" insurance policies in its sights, particularly unsuitable life insurance products.
Insurers have been put on notice, Australian Securities and Investments Commission (ASIC) Commissioner Alan Kirkland said.
He highlighted multiple issues with how companies responded to devastating floods across the nation in 2022 including communication concerns, resourcing of claims handling and contract management.
Companies insist they've cleaned up their act but that's now set to be put to the test, he said.
"Following some of the severe weather events we saw last summer we want to understand whether that is the case," Mr Kirkland said.
"ASIC will continue to look closely at the way they support Australians in need and we will not hesitate to take enforcement action where we find misconduct."
Insurers paid out $2.2 billion in extreme weather claims in 2023/24, according to Insurance Council of Australia data released this week.
The council says the impact of extreme weather on the economy has more than tripled over the past 30 years, leading to higher premiums and a growing protection gap as coverage becomes unaffordable for some people.
Flooding is the nation's most expensive weather emergency, with about 1.2 million properties facing varying levels of flood risk.
"Harmful" insurance products are also being examined by the watchdog under its 2024-25 Corporate Plan, including a review of direct sales practices and whether they impact which products customers buy.
Debt management firms and advice on self-managed super funds from financial advisors are also set to be examined, while auditing firms will undergo an ethics and independence review to "improve confidence" in the industry, sparked by scandals involving consultants over the past 18 months.
The watchdog revealed it launched 170 new investigations last year, up 25 per cent on the previous 12 months.
Its investigations led to 18 criminal convictions, a further 23 others charged and some 33 new civil proceedings filed in the Federal Court.
"The integrity of our markets is fundamental to maintaining trust in Australia's financial system," commission chair Joe Mr Longo said.
Last week, ASIC started legal action against the nation's main stock exchange, ASX Limited, alleging it misled the market about the progress of an IT overhaul.
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