The practice, labelled 'unconscionable' by Tenants Victoria in a recent parliamentary inquiry, involves a tenant being billed by a landlord's insurer for the cost of accidental damage when a landlord has made a claim on their insurance.

The commitment by insurance companies to cease the practice is the upshot of a public campaign by consumer advocacy group Choice and west Melbourne community legal centre WEstjustice.

Erin Turner, director of campaigns at Choice, said while the practice of recovering costs from tenants for accidental damage had been known to exist for a number of years, it had become more pervasive in recent times.

"We've seen a number of cases this year that point to some insurers taking a really aggressive approach, sending bills to tenants for accidental damage or even damage they didn't cause" Ms Turner said.

"We have also seen some insurers involve debt collectors early, which can terrify tenants and really take advantage of them."

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The Insurance Council of Australia code of practice, which is voluntary, states that insurers should explain how the amount they seek to recover is fair and reasonable and point to robust evidence as to why, in the insurer's view, the tenant is liable.

This is standard best practice for recovery processes involving intentional damage to property.

But Ms Turner said the letters of demand sent to tenants were for accidental damage, not intentional damage, and also lacked this information. As a result, the letters gave the appearance of a non-negotiable bill or invoice, thereby masking the reality they were just a disputable claim.

"To us, it looked like rental Robodebt," she said. "These letters just included a demand to pay, with little to no evidence showing the tenant actually owed the money."

Ballarat and Grampians Community Legal Service principal lawyer Toni Thomas said it was an issue which had appeared periodically in her practice.

"We do assist clients with these types of matters and have found a mixed response from insurers," Ms Thomas said.

"Some [were] not willing to budge, pursuing the matter vigorously, while others were willing to waive the debts entirely."

Ms Turner said it was not uncommon for the insurer to drop the claim when challenged.

"If the tenant or a community legal centre raised the issue, quite often the claim disappeared, which tells you how much basis they had," she said.

"But what we were worried about was all the cases we don't know about, where people had unfairly paid something out of fear just to make the issue go away."

A Horsham couple was recently sent a $78,000 bill by Suncorp-owned GIO after an accidental fire in the kitchen of their rental property last year. The claim was dropped after the couple shared their story with the media.

In another case, run by WEstjustice, a tenant from west Melbourne was lumped with a $300,000 bill three years after an accidental fire at the property which had occurred when he wasn't home.

Matthew Martin, acting legal director of WEstjustice, said it was the "perfect example" of why insurers should not be pursuing tenants for accidental damage.

"The power imbalance between the landlord insurer and the tenant is actually quite great," Mr Martin said.

"The landlord insurer has a lot of resources at its disposal in terms of the claims process and the recoveries process against the tenant, whereas the tenant isn't armed with the knowledge of the law and their rights generally."

Mr Martin said the shift in policy on the part of insurance companies was undoubtedly a "big win for renters", but cautioned against complacency.

"There's always the possibility that [insurance companies] could break their promises or that their policies might change down the track," he said.

"So, our next step is to advocate for these protections to be codified in legislation or the code of practice."

Agata Wierzbowski, director of client services at Tenants Victoria - the peak body for the state's two million renters - said she hoped the commitment by insurers not to pursue renters for accidental or unintentional property damage would "solve a longstanding problem."

"This undertaking, especially during the challenging COVID-19 pandemic, is a really welcome statement of intent," she said. "In the past, too many renters have been unfairly pursued by insurance companies for large debts due to damage that's not been their fault at all."

As a result of the announcement, insurance companies IAG, QBE and Suncorp will likely align their policies with companies such as ComBank and Youi, which only pursue renters for accidental damage if they have insurance.

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