Customer disputes: The path to improvement

Vol 47: Issue 1 | April 2024

The battle to minimise insurance complaints is far from over, despite a promising fall in disputes related to life insurers.

In its latest report, covering 2022-23, the Australian Financial Complaints Authority (AFCA) reveals that life insurance complaints fell 24 per cent to 1,898 cases and accounted for 2 per cent of overall cases lodged with the ombudsman. 

AFCA has cautioned, however, that premium changes and claim delays continue to be issues for the industry. 

It adds that the fall in life insurance complaints can largely be explained by a reduction in disputes involving the collapsed Youpla Group, which had operated funds providing funeral insurance, mostly marketed to Indigenous Australians or Aboriginal Australians. When the Youpla effect is removed, the year-on-year reduction for life insurance complaints is about 7 per cent.

Code prep pays off

Christine Cupitt, CEO of the Council of Australian Life Insurers, says the positive 2022-23 results come on the back of concerted efforts by life insurers, including through preparatory work to comply with recent revisions to the Life Insurance Code of Practice. 

“There’s no doubt that life insurers have made significant investments to improve the way they serve their customers, and that includes the implementation of the Life Code and everything that goes along with that — such as changes to policies, processes and systems, staff training, consumer information and disclosures,” she says. 

“There’s a whole wraparound of work that has happened to implement that Life Code, and we are really pleased that this is starting to be reflected in fewer complaints to AFCA about life insurers.”

These gains notwithstanding, Cupitt says life insurers cannot afford to be complacent given their important role in society to create “peace of mind” for people who are often at a low ebb as they experience grief over the loss of loved ones. 

“Life insurance is based on a promise, and life insurers are here to provide the protection and certainty that Australians need on their best and worst days.”

Claim delays the big concern

Beyond life insurance, the AFCA report card for 2022-23 still poses concerns for the insurance industry.

General insurance complaints rose by 50 per cent to 27,924, with almost 30 per cent relating to delays in claims. 

High complaint volumes were not primarily linked to claims from severe weather events and natural disasters, but stemmed from business-as-usual claims. 

Delays in insurance claims handling were also a problem in superannuation, with super complaints jumping 32 per cent overall. This included a 136 per cent spike in complaints about claim delays, especially regarding life insurance and total and permanent disability insurance.

The devastating floods that hit south-east Queensland and New South Wales in 2022 put significant pressure on insurers. The Insurance Council of Australia (ICA) has estimated that the floods caused almost A$7.4 billion in insured damages.  

Mathew Jones, the ICA’s general manager of public affairs, notes that the floods were the “costliest insured event” in Australian history “and created significant challenges for the insurance industry in addressing an extraordinary volume of claims across a wide geographic area”.  

“Following three years of La Niña conditions, the event tested the systems insurers use to respond to customers and raised issues such as a shortage of experts required to assess and manage flood claims, building labour and materials constraints, and the complexity of recovery and resilience programs delivered by both the Queensland and New South Wales governments,” he says.  

Reviewing and learning

In early 2023, the ICA commissioned its own review of insurers’ response to the floods, undertaken by Deloitte. This led to the release in October last year of The New Benchmark for Catastrophe Preparedness in Australia report, which outlines seven key recommendations for the insurance industry. 

1. Preparedness: improving catastrophe planning, particularly insurers’ preparedness for extreme events.
2. Customer experience: improving communication with policyholders during catastrophes and delivering consistency with claims handling and complaints.\
3. Resourcing: redesigning resourcing capability for extreme events through a greater focus on workforce planning and areas such as catastrophe onboarding, training and competency management.
4. Operational response: assessing the operational efficiencies that could be delivered in catastrophes through investment in process, technology and infrastructure.
5. Governance and transparency: improving the ability to capture and leverage data and insights on insurers’ performance during extreme weather events.
6. Co-ordination with government: enhancing effective co-ordination between government and the insurance industry to deliver better customer outcomes, including supporting faster access to government funding.
7. Code review: reworking the “extraordinary catastrophe” definition in the General Insurance Code of Practice.

“The ICA acknowledges there were failures of systems, processes and resourcing which impacted some customers as they progressed through their claims process, which was the driver behind the industry proactively reviewing its performance through this event,” says Jones.

He says the ICA, along with its member insurers, have accepted all seven recommendations of the review and are “committed to implementing them promptly”. 

“Insurers are already investing in technology upgrades, streamlining workflows and building stronger partnerships with external assessors to expedite claims resolution,” he adds.  

Natural disasters on the radar

In media comments last year, AFCA stated it was “disappointing” that insurance claim delays continued to be a concern, adding that “while we acknowledge the challenges insurers have faced, the bulk of complaints in the past year were not about natural disasters but about regular claims”. 

Furthermore, in an October 2023 submission to a House of Representatives Standing Committee on Economics inquiry into insurers’ responses to the floods, AFCA pointed to the reality of climate change and land-use patterns in Australia. 

Natural disaster events, it suggested, “will likely become more common and continue to have significant effects on Australian communities. Being able to juggle ‘business as usual’ claims with natural disasters must be part of the way we all work.”

AFCA is reluctant to comment further at this stage, not wishing to pre-empt the parliamentary inquiry into the 2022 floods. 

Emma Curtis, AFCA’s lead ombudsman, Insurance, has issued a statement, however, saying that AFCA “looks forward to engaging with the parliamentary inquiry.

The inquiry is an opportunity for everyone to better understand the issues and to find ways forward, for the benefit of both consumers and insurers.”

The likelihood of more frequent natural disasters, challenging global economic conditions and ongoing supply-chain difficulties is set to maintain pressure on insurers as they respond to customer claims.

The construction industry, in particular, is feeling the heat. The latest Australian construction material price outlook report from business analytics company Altus Group points to a mixed outlook for the construction sector that is likely to have flow-on effects for insurers. 

On a positive note in relation to the cost of construction materials, it states that “the persistent upward trajectory in material prices came to a halt in Q3 2023, ending 16 straight quarters of cost increases since December 2019”.

However, while prices eased for structural timber and steel products, price hikes were recorded for bricks and diesel — two items that power the construction sector.  

Altus Group warns that squeezed margins and the collapse of many construction companies are expected to continue due to the “usual suspects of skilled labour shortages, inflationary pressures, interest rate rises and a commercial sector that continues to suffer from flow-on effects of [the] COVID-19 pandemic”.

This construction industry malaise could impact insurers as they manage property-related claims. 

New price pressures are also likely to emerge, with Altus Group noting that carbon is expected to “become a significant additional construction cost as large companies are required to disclose a wider range of emission sources”.

The ICA / Deloitte report also highlights concerns over a lack of building materials, noting that this factor “constrained insurers’ ability to rebuild in a timely manner”.

The report adds that external factors such as labour shortages and supply-chain pressures — especially related to building and construction, motor vehicles and accommodation — have had a significant impact on the insurance industry.

“This would have had an impact on the insurers’ recruitment of staff, including claims handlers and assessors, and timeframes for property and vehicle repairs and rebuilds.”

Continuous improvement the goal

In assessing reasons for insurance claim delays, Cupitt agrees that skills and labour shortages have clearly been a challenge for the insurance sector, along with specific issues related to certain types of claims. 

“Services in many parts of the economy have been put under pressure by skills shortages, and that affects super fund trustees and life insurers, too.”

She says that, ultimately, life insurers want to support customers when they are “facing some of life’s hardest decisions” and that insurers are committed to “continuously improving” service across all aspects of life insurance. 

“That includes claims handling, but also how products are designed and how they’re sold, timeframes for communicating with customers and timeframes for managing and resolving complaints.”

Cracking the code

Life insurers have been praised for their “proactive engagement” in response to revisions to the Life Insurance Code of Practice. 

Chair of the Life Code Compliance Committee Jan McClelland says the industry’s reaction to the reforms, which took effect from July 2023, has been “positive” and includes a genuine commitment to improvement from insurers and the Council of Australian Life Insurers (CALI).

“The Life Code Compliance Committee [CCC] has had proactive engagement from insurers and CALI as they’ve sought clarification on new obligations,” says McClelland. 

“This has shown a commitment to the new Code, which can genuinely improve practices in the industry, leading to better and more consistent service for consumers. 

The support from the Life CCC has been essential in implementing the new Code, helping insurers understand what is expected to comply without undue disruption.” 

McClelland says the Life CCC will “continue to review compliance with the enhanced commitments in the Code to ensure the industry’s practices improve in line with consumer expectations and needs”. 

A fair go for all

The Code revisions have ushered in a raft of additional consumer protections as part of the industry’s commitment to providing consumers with fairer treatment and more consistent service. 

They build on the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that targeted a range of industry issues, including conflicted remuneration relating to life insurance products.

There is speculation that preparatory work by life insurers to comply with the Code revisions has contributed, in part, to a drop in life insurance complaints to the Australian Financial Complaints Authority in 2022-23.

Christine Cupitt, CEO of CALI, believes the Code has been a “turning point” for life insurers and their customers. “It has set higher standards than the law and includes over 50 new benefits and protections for customers, including important protections for customers who are vulnerable, require financial assistance or who are experiencing a mental health condition,” she says.

While the Code sets very clear directions for life insurers on matters such as timeframes for deciding claims and keeping customers informed — as part of 10 key promises enshrined in the Code — Cupitt says it is “much more than a rule book”.

“The Code has really been a catalyst for cultural change and a focus for the renewed commitment that Australia’s life insurers have to keeping Australians front and centre in all aspects of life insurance,” she says.

2022-23 AFCA report card

The Australian Financial Complaints Authority’s review of complaints relating to insurance delivered the following findings.

General insurance

•  The highest number of complaints by product were for home building insurance with 9,592 complaints, or 34 per cent of the total; comprehensive motor vehicle insurance with 8,296 complaints, or 30 per cent; consumer credit insurance with 1,951, or 7 per cent; travel insurance with 1,679, or 6 per cent; and home contents insurance with 1,565, or 6 per cent.
• The top three issues complained about were claim-handling delays with 7,953, or 28 per cent of the total; claim amounts with 5,720, or 20 per cent; and denials of claims due to exclusions or conditions with 4,733, or 17 per cent.

Life insurance

• The leading sources of complaints were income-protection policies with 523, or 28 per cent of the total; funeral plans with 441, or 23 per cent; term life policies with 347, or 18 per cent; and total and permanent disability policies with 210, or 11 per cent.
• The most common issue raised by complainants was misleading product or service information, accounting for 19 per cent of the total.

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