Insurance complaints handling: the new rules

Vol: 44 Issue: 2 | Aug 2021

Customer complaints can provide the insights and feedback insurers need to fine-tune their products and processes. Managing them well can also strengthen customer relationships and the insurer’s reputation. 

‘Complaints handling is a crucial first step in the dispute resolution process,’ says Olivia Hua, a lawyer with Sophie Grace Compliance and Legal. ‘It plays a vital role in building business success.’ 

There can also be significant economic benefits. The 2018 Return on Investment of Effective Complaints Management Report from the Society of Consumer Affairs Professionals and the University of Newcastle found that every dollar invested in complaints handling has a potential return of up to A$10 for the organisation — a return on investment of 1,000 per cent. 

Between 1 January 2020 and 31 December 2020, the Australian Financial Complaints Authority (AFCA) received 19,562 general insurance complaints. John Price, AFCA’s Lead Ombudsman for Insurance, believes that many complaints, particularly those concerning the denial of claims, arise because people often don’t understand what their insurance policies cover or their rights under those policies. 

‘Research conducted by the Australian Securities and Investments Commission [ASIC] and the Insurance Council of Australia confirms that few consumers read the Product Disclosure Statement at all and those who do rarely read the full document,’ says Price. 

‘They often don’t understand the extent of cover or the exclusions that might apply until it’s time to lodge a claim.' 

There can be confusion between an accidental damage policy and an insured events policy and a lack of understanding that, while a policy may refer to additional benefits such as temporary accommodation or removal of debris, that may not be in addition to the sum insured. 

‘When it comes to life insurance, people may struggle to understand just what is meant by a pre-existing condition, particularly where some income disability products or life products are sold without the need for medical information.’ 

A NEW APPROACH TO COMPLAINTS

Recent regulatory reforms were designed to improve consumers’ financial awareness and literacy, along with industry behaviour.

Anyone who handles or settles an insurance claim must have an Australian financial services licence (AFSL) by January 2022. They must also be members of AFCA and have an internal dispute resolution process that complies with the requirements introduced by the new ASIC Regulatory Guide (RG) 271, which comes into force in October this year.  

‘The updated standards and requirements in RG 271 are designed to benefit customers by ensuring they have access to fair and timely complaints handling processes,’ says Hua.

And, more than ever, insurers need to make sure they communicate in a timely manner and listen to what their customers have to say, adds Price.

Price sees the various reforms working together to support a fairer and more consumer-centric model. ‘They also sit neatly with the fairness project we are developing in partnership with the University of Melbourne,’ he says. 

AFCA’s Fairness Project aims to create clarity and certainty for stakeholders about how the organisation assesses what is ‘fair’. 

‘We’ve created a framework that encapsulates the essential elements against which AFCA will assess financial disputes in accordance with our jurisdiction,’ says Price. 

‘It provides transparency in terms of how we exercise our fairness jurisdiction and articulates a framework that supports how we’ll exercise it in our decision-making processes. It will also promote consistency in decision-making.’ 

A NEW CHARTER

AFCA recently consulted on an engagement charter that sets out how it expects people to behave when they engage with it. This includes financial service providers, small businesses and individuals, as well as AFCA itself.

‘We want to ensure parties conduct themselves in a way that is respectful to our staff and to one another,’ says Price. ‘We’ll be releasing the charter in the coming months.’

AFCA completed an informal consultation on the broader framework and Fairness Project in 2020 but is continuing to engage with stakeholders on ways to improve service delivery.  

Price says the project formally wrapped up on 30 June, but emphasised AFCA would retain its focus on ‘delivering fair outcomes in a timely and efficient way’.

‘Stakeholders have been participating in the Treasury Independent Review of AFCA and we also look forward to those outcomes.’
Insurers need to make significant changes in order to comply with the new obligations, but Price is optimistic about compliance.

‘I’ve heard that many firms are already practising the new timeframes,’ he says. ‘Following discussions with people in the industry, I’m confident that insurers are fully aware of what is required and that preparations are well underway.’

CHANGING THE RULES

The Australian Financial Complaints Authority (AFCA) has amended its rules to provide clarity for consumers and financial firms regarding its jurisdiction to receive complaints about the conduct of an authorised representative of an AFCA member. 

The rule changes were demanded by the Australian Securities and Investments Commission (ASIC) following the NSW Supreme Court’s judgement in DH Flinders Pty Ltd v Australian Financial Complaints Authority in November 2020. 

This case related to AFCA’s jurisdiction to consider a complaint against a licensee in relation to the conduct of its corporate authorised representative, specifically where the conduct of the representative was without or outside authority. 

The judgement highlighted that AFCA’s rules needed to be clearer to ensure that they reflected the same obligations and liabilities for licensees as set out in the Corporations Act.

At ASIC’s direction, the rules now clearly reflect the same statutory liability for licensees regarding their authorised representatives as set out in the Corporations Act and the National Consumer Credit Protection Act.

COMPLAINTS RECEIVED BY AFCA 

Between 1 January 2020 and 31 December 2020

Total number of general insurance complaints: 19,562

Products with the most complaints*:

1. Travel: 4,429
2. Motor vehicle — comprehensive: 3,847
3. Home building: 3,724
4. Motor vehicle — uninsured third party: 1,032
5. Home contents: 962

Top 5 issues*:

1. Delay in claims handling: 3,629
2. Denial of claim — exclusion / condition: 3,592
3. Claim amount: 3,237
4. Denial of claim: 2,594
5. Service quality: 1,354

COVID-19:

• Between 1 January 2020 and 31 December 2020, AFCA received 4,026 general insurance complaints relating to COVID-19, representing around 20 per cent of all general insurance complaints in the period.
•  Of this number, 3,382 related to travel insurance.
•  AFCA closed 3,470 general insurance complaints relating to COVID-19 during the period.

* One complaint can have multiple products / issues.

^ Data correct as at 21 May 2021.

KEY CHANGES INTRODUCED BY NEW LEGISLATION

• The definition of ‘complaint’ has been amended to include those made via social media.
• Insurers must respond to standard complaints within 30 rather than 45 days.
• Information required for written internal dispute resolution (IDR) responses must be clearly set out to help consumers decide whether to escalate a complaint.
• There are new timeframes for customer advocates to review appeals against IDR decisions.
• Insurers must provide guidance relating to how they will deal with representatives who are not acting in the best interests of the consumer.
• The firm’s complaints policy must be published on its website in a range of formats and languages.