Motor vehicle cover is one of the most complained about insurance categories.
This is largely because insurers don’t adequately explain what is covered and what is excluded from their policies, according to John Price, lead ombudsman — insurance at the Australian Financial Complaints Authority (AFCA).
In its 18 months or so of operation, AFCA has received about 100,000 complaints about financial products, with insurance accounting for about a quarter of those and motor vehicle policies making up about a quarter of all insurance complaints.
Motor vehicle insurance is typically the most complained about general insurance category, although the spate of recent natural disasters in Australia has pushed housing claims into top spot for 2020.
Price says the high number of motor vehicle insurance complaints relates in part to the high number of policies taken out by consumers, but also to the product not being well understood.
WHERE THE COMPLAINTS LIEThe top cause of complaints is delays in the handling of claims, from assessment and investigation to approving repairs.
Next are disputes over the claim amount — either the amount offered for repair or, if the vehicle is assessed as a total loss, its market value (if it is a market value policy).
Denial of a claim is the third-highest reason for complaints, particularly where it relates to mechanical damage which people believe is accidental damage, but the insurer says is related to normal wear and tear.
Policyholders also complain about losing their excess, when the insurer believes they are at fault for the accident, but the policyholder doesn’t.
Add-on insurance sold by car dealerships, such as tyre and rim insurance and extended warranties, is also a significant cause of complaints, but most of these are resolved quickly with a refund by the insurer.
CONFUSION OVER POLICIESPrice says the common thread in most complaints is the lack of understanding consumers have about their policies.
‘I think people misunderstand what they have cover for, often based on the way the policy is advertised and promoted as against what’s in the actual product itself,’ he says.
‘The industry doesn’t highlight exclusions in its advertising and it’s not required to, but if a person doesn’t read the policy and doesn’t bother to make those inquiries, that can result in a belief that they have cover when in fact they don’t.’
For example, Price says consumers aren’t clear about what accidental damage means. If people are driving along and their car blows a head gasket and breaks down, they see it as accidental damage because it’s unintended and unexpected.
They don’t realise that it is mechanical damage and not covered.
In one case, the owner of a 2010 Mercedes Benz B180 lodged a complaint with AFCA after they were involved in a crash and the insurer refused to cover repairs to the transmission, stating the damage had arisen as a result of general wear and tear, which was not covered by the policy.
AFCA found in favour of the insurer because there was insufficient evidence to show the damage to the transmission was related to the claimed event, despite the owner of the car presenting a mechanic’s report concluding the damage was as a result of the impact to the vehicle.
However, AFCA placed little weight on the evidence as expert opinion. ‘This is a handwritten statement and not on any sort of company letterhead or identifying material,’ it said in its determination.
‘The insurer was entitled to exclude the transmission damage from the claim and is not required to take any further action in this regard.
However, it is required to arrange an inspection of the complainant’s concerns about the repairs and consider the policy response once that inspection has taken place.’
SOLUTIONS TO IMPROVE OUTCOMESAdam Squire, head of claims at insurance broker Gallagher Australia, identifies another key issue resulting in complaints: assessors and claims handlers are short on time because of workloads and limited authorities.
‘Increased time to assess claims and investment in resourcing would most likely make a significant difference,’ he says.
Squire adds that some customers see making a claim as a combative process from the outset, so lodging a complaint is already top of mind when starting a claim.
To improve the situation, he believes that insurers should focus more on outcomes than on process. He points to the cost of dealing with a disputed loss, which generally ‘far outweighs’ the cost of the disputed settlement but is a different line on the profit and loss statement.
‘Taking an industry-wide view, we need to stop looking at the claims cost and staff expenses line items separately on a P&L,’ he says.
Squire says the industry has changed from a model where generally one person handled the claim from lodgement through to resolution and took ownership of the outcome.
He says many decisions are now based on ‘slavishly following a claims handling process’.
Price gets back to the need for improved communication — from cover to claims — as a solution to reducing and better handling complaints.
‘There’s no substitute for clear, transparent communication in terms of resolving matters. And that’s not sending an email. That’s actually getting on the phone and talking to people,’ he says.
‘I think the industry needs to clearly communicate with the consumers. It needs to clearly communicate what the cover is. And if there’s going to be a delay or if there’s going to be an issue, it needs to talk and to talk early, not delay it.’
CAR INSURERS RESPOND TO COVID-19Auto insurers in Asia Pacific have been doing their part to help policyholders driving less during
the pandemic restrictions.
Campbell Fuller, head of communications and media relations at the Insurance Council of Australia, says Australian car insurers have been ‘smashed’ by the hailstorms earlier this year and the devastating bushfire season. Both have stretched their resources.
Nonetheless, several insurers have offered premium holidays, freezes, reductions or rebates to customers affected by COVID-19.
Sunshine Coast-based insurer Youi, for example, is providing a 15 per cent refund to new and existing customers for three months. At least 50,000 Youi customers have opted in for this, says Youi CEO Hugo Schreuder.
Similarly, QBE Australia’s ‘laid up’ cover provides small to medium-sized businesses with a premium return for vehicles that were not driven.
QBE has also given eligible existing and new motor customers a one-off A$50 gift card to help them through COVID-19.
‘This equates to around 25 per cent of the average policy for the April–June period,’ says Vivek Bhatia, CEO of QBE Australia Pacific.
QBE has also extended payment timeframes or deferred excess payments for up to six months, he adds.
IAG, meanwhile, allows motor customers to defer premium payments for up to 90 days, while Allianz Australia’s policyholders can place payments on hold for up to 60 days. Both also provide help on excess payments.
As an extra benefit, IAG and QBE pay accredited smash repairers to disinfect customer cars before and after repair work has been done.
In New Zealand, AA Insurance introduced three key initiatives for auto insurance customers during COVID-19: a NZ$2 million fund to look after vulnerable customers experiencing genuine hardship; a freeze on premium increases; and a commitment to reduce premiums once it has a clearer picture of how lockdown and other restrictions have affected its claim costs.
‘We are mindful people are driving less, which is reflected in fewer claims being made. We don’t intend to take advantage of this at the expense of our customers,’ says Chris Curtin, CEO of AA Insurance.
In Singapore, AXA Insurance announced a S$500,000 care package to help customers affected by COVID-19. Customers, including motor insurance customers, who are hospitalised due to COVID-19 will receive a cash benefit of S$200 per day of hospitalisation, up to a maximum of 90 days.
In the event of death due to COVID-19, a S$20,000 lump sum will be paid out. Frontline healthcare workers will receive double these amounts.
While reductions in road traffic during COVID-19 may result in fewer collisions, Fuller notes that car insurance covers a variety of risks
for a full year.
‘Most risks remain unchanged during the pandemic,’ he says. ‘Comprehensive car insurance can cover you for theft or damage to your car while it’s parked on the street, your driveway or garage, such as theft or vandalism, or damage caused by severe weather.
'It also covers you for damage to the car or damage you may cause during essential trips to the doctor, supermarket or park for some exercise. And, if you have finance on your car, you are usually required to maintain comprehensive car insurance.’