A woman forced to sack two employees she considered family following devastating floods was told by an insurance company the lay offs were a "business saving".
The woman's experience was raised during a public hearing in order to highlight an apparent disconnect between insurers and the customers they served.
Independent MP Andrew Gee, who has pursued insurance companies over their response to major floods in 2022, said greater compassion and understanding was needed.
"A system like this is broken," he told insurers at a hearing in Canberra on Monday.
Nick Hawkins from Insurance Australia Group said causing further harm to people experiencing loss was never the aim.
"It's extremely disappointing from my point of view to hear that," he said in response to the woman's experience.
Insurance companies often escalate claims from vulnerable people to specialist teams with trauma training, the committee was told.
Aggrieved customers are regularly locked in protracted mediations to negotiate an outcome with their insurers.
Mr Gee said the overwhelming majority of customers were successful, meaning their hurt was exacerbated for little benefit.
Mr Hawkins said his company was working hard to improve the experience of its customers.
Throughout the day-long hearing, insurers were grilled about delayed or unpaid claims from people who lost everything in floods.
Some industry leaders defended the payout processes, warning significant changes could force premiums up or send insurers broke.
"Home insurance as a product in this country is under extreme pressure," Insurance Council chief executive Andrew Hall said.
Mr Hall was also among those to warn it was becoming harder to insure people in flood plains.
"It's very expensive - 220,000 homes sit in a one-in-five flood area," he said, referring to the probability one would happen in those years.
Steve Johnston from Suncorp Group also spoke about the flood plain risk, saying local councils were allowing houses to be built and restored on unsuitable grounds.
He visited at least four homes destroyed by floods that were rebuilt in the same way they were first constructed.
Mr Gee seized on the Insurance Council's claims about the cost of offering coverage, saying the industry's net after-tax profits soared 400 per cent last year.
"The industry is not on its knees ... you're making a lot of money," he said.
In response, Mr Hall said profits were extremely volatile and subject to returns on investment.
If insurers were able to turn a profit, more competition could come back into the industry, which would lead to lower premiums, he said.
But companies were still struggling to balance reinsurance and business operating costs.
