Fairness first For the Australian Financial Complaints Authority, a fair go is most important. So what happened to the laws insurers are also guided by? By Bernice Han
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ocus on fair, not blackletter law,” the Australian Financial Complaints Authority (AFCA) said in its July newsletter last year, outlining how it would make determinations. “We decide each case as we see it and make determinations without favour,” the financial services sector’s new complaints umpire referee said. “The test we apply is, ‘what is fair in all circumstances of the case?’ “With that in mind, blackletter law arguments that are legally sound and well-articulated will not succeed if they deliver fundamentally unfair outcomes for consumers.” The external dispute-resolution body, which replaced the industry-founded Financial Ombudsman Service in November 2018, was about nine months into its operations when the newsletter was published. It came more than a year after the Hayne royal commission into financial services sector misconduct had wrapped up and Canberra had committed to act on all 76 proposed measures. In the post-Hayne world, consumer protection has taken on increased importance. The royal commission exposed a range of practices and behaviour where financial products were designed to extract maximum benefit to the seller rather than value to the consumer. Insurers and other financial services providers once operated within a system where caveat emptor ruled, with product design, sales and service relying on the exact legal meaning of controlling legislation and the contract between the parties.
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The insurance industry has been grappling since the 1980s with the transition from its previous focus on contract law to a consumer-conscious culture, where there is pretty much universal acceptance in politics and business that “doing the right thing” is the emerging key to success. That transition is at the heart of AFCA’s approach to insurance disputes. The principle of “fairness” that guides its thinking is skewed heavily in favour of the consumer. It holds that a financial services provider can act strictly within the law when responding to a consumer and still be in the wrong. Where a consumer has made what AFCA judges to be an innocent mistake, the financial services provider involved will end up on the losing side. But John Price, the Lead Ombudsman for Insurance at AFCA, insists it’s more balanced than that. “Fairness aims to achieve a fair outcome to all parties,” he tells Insurance News. “Certainly, reliance on blackletter law does not necessarily lead to fairer outcomes.” As Mr Price also points out, these days “it is rare to see a court simply rely on blackletter law. Courts apply community standards and fairness in many ways. “Fairness over-rides everything that AFCA does. It is our over-arching principle to do what is fair in all the circumstances. You cannot just extract fairness itself and ignore everything else. “Fairness is looking at all the circumstances. It’s
