Litigation through the courts is one way of resolving insurance disputes, but it is often costly and time consuming.
A number of organisations deal with various kinds of insurance disputes so long as the complaint is not or has not been referred to the courts. They provide a number of alternatives to litigation for policyholders.
The General Insurance Code of Practice (‘Insurance Code’) (pt 11) sets out processes for the internal and external resolution of disputes with insurers.
Australian Financial Complaints Authority
On 1 November 2018, the Financial Ombudsman Service was replaced by the Australian Financial Complaints Authority (AFCA). AFCA is a free national service available to all consumers.
AFCA assists to resolve disputes between consumers and member financial services providers. Any financial service provider conducting business in Australia can be a member of AFCA. The dispute resolution process covers financial services disputes involving those relating to banking, credit loans, general insurance, life insurance, financial planning investments, stockbroking, managed fund and pooled superannuation funds.
In respect of insurance disputes, AFCA can only consider a dispute that arises from or relates to an entitlement or benefit under a general insurance policy by a person who is specified or referred to in the policy (whether by name or otherwise) as a person to whom the policy extends.
There are limitations. AFCA may only consider a dispute about a general insurance policy that is:
- a retail general insurance policy;
- a residential strata title insurance product;
- a small business insurance product;
- a medical indemnity insurance product; or
- a title insurance policy.
Other disputes with insurers and insurance brokers may be dealt with, but only if all parties agree.
AFCA may not consider a dispute regarding a decision to refuse to provide insurance cover except in circumstances where the decision was made indiscriminately, maliciously or on the basis of incorrect information.
AFCA can accept claims up to $1 million. However, the maximum total AFCA can award is:
- for claims made on life or general insurance policies dealing with income stream risk or similar advice: $13 400 per month;
- for uninsured third-party motor vehicle accident claims: $15 000; and
- for all other claims: $500 000.
AFCA first encourages consumers to attempt to resolve their dispute through the insurer’s internal dispute resolution process. If this is not successful, consumers can then contact AFCA and they will assess whether they can handle the dispute.
AFCA may initially manage the dispute through negotiation and conciliation. Otherwise, AFCA will investigate the claim and issue a recommendation.
In assessing a dispute, AFCA will take into account legal principles, applicable industry codes and guidelines, and good industry practice. AFCA may also take into account specialist input.
A recommendation is a preliminary decision on the merits. AFCA will ask the parties to consider accepting the recommendation. Parties have 30 days to agree on the recommendation.
Otherwise, AFCA will proceed to a determination. A determination is a final decision on the merits.
A consumer is not bound to accept AFCA’s determination. However, if a consumer wishes to accept a determination, they must inform AFCA and the financial services provider within 30 days. Financial services providers are bound by AFCA’s determinations.
Small claims are heard by the Victorian Civil and Administrative Tribunal (VCAT) (see ‘Small claims: VCAT’s Civil Claims List’ in Chapter 7.4: Taking action as a consumer).
VCAT offers a simple and inexpensive way for policyholders to resolve disputes. It may not hear a claim that has already been taken to court.
VCAT will arrange for a hearing of the policyholder’s dispute. Policyholders may seek legal help to prepare themselves for the hearing. In small claims, the policyholder (and insurer) cannot have a lawyer act for them at the hearing but may be represented by a friend or by a worker from a community organisation.
Australian Securities and Investments Commission
The Australian Securities and Investments Commission (ASIC) regulates insurers through its licensing scheme. ASIC’s objective is to ensure that insurers and insurance brokers treat consumers honestly and fairly.
ASIC expects consumers to attempt to resolve their grievances with the insurers directly or through AFCA. However, if an insurer has engaged in misconduct, ASIC has regulatory powers and enforcement tools at its disposal.
As discussed in this chapter, ASIC’s powers have been bolstered since the Hayne Royal Commission.