Easing the claims pain point

Easing the claims pain point

The Australian Financial Complaints Authority’s new insurance ombudsman sees communication and clarity as key to better claims experiences

By John Deex

Two of the top five issues raised with the Australian Financial Complaints Authority (AFCA) last financial year – across all financial products – relate to insurance claims.

Whether it’s delays, denials or the amounts paid, claims have always dominated consumer concerns about their insurance, and last financial year around 70% of the almost 17,000 general insurance complaints received were about claims.

But new Lead Ombudsman Insurance Emma Curtis believes a combination of regulatory change and renewed insurance industry efforts provides hope for the future.

Ms Curtis replaced the retiring John Price in August, making the switch from the Australian Securities and Investments Commission (ASIC), where she was Senior Executive Leader, Insurers.

“Claims handling is clearly a key pain point for consumers,” she tells Insurance News.

“You can understand that because that’s when consumers, who have been paying for a product often for many years, have to actually use it.

“Of course, insurers only need to pay out on what they need to under the policy, as long as they’ve acted fairly. But there’s some work that could be done.”

Ms Curtis accepts that sometimes customers complain to AFCA when their insurer was correct to deny a claim, but says that even in these cases better communication might have helped ease the consumer’s concern.

Customers having a clearer idea of what they’re covered for would help, and “ideally consumers should really spend some time making sure the policy is what they need”.

But Ms Curtis accepts insureds rarely read the whole product disclosure statement (PDS).

“And sometimes when we look at the PDS we find there are internal inconsistencies,” she says. “That doesn’t help because if we can’t work it out, how can we expect a consumer to work out what the cover means in practice?

“Insurance is a difficult concept – it’s complicated. Even the most simple insurance is a fairly complex concept about risk management.”

Ms Curtis says consumers are vulnerable when they make a claim, even if on the face of it the damage is not major. A minor traffic bingle can still mean the claimant’s car is out of action for a while, and having to deal with an insurer adds to stress levels.

So poor communication just exacerbates the problem.

“That’s when things can go off the rails. So it can really help to try and manage that relationship and clearly communicate to the consumer, even if the claim isn’t able to be paid.”

How does she see that being achieved?

“Focusing on that relationship-building, and the trust, the engagement and regular reporting.

“Providing dedicated claims staff so there’s a consistent person that the consumer’s talking to at the insurer… can really help to build trust, rather than being passed around to different people all the time.

And then, keeping people up to date with how the claim is progressing so that even if there are expert reports that need to be done, and there are some unavoidable delays, keeping the consumer informed about that can really help.” Insurers have learned some lessons since concerning claim stories emerged at the Hayne royal commission, Ms Curtis says. Regulatory change that followed the hearings and the commission’s final report could make a huge difference. Design and distribution obligations, which took effect in October this year, shift the onus onto product issuers to provide cover that’s consumer-centric, and suitable for the target market. “I think that’s potentially a game-changer in terms of really shifting the burden away from consumers onto the product issuer to make sure that that products are designed appropriately,” she says. “It addresses some of the issues that have been raised by regulators about disclosure. Disclosure does have limitations, in part because we know customers don’t always read their PDS in full.” Another key reform is making claims handling a financial service. This measure means specialist claims management companies need a financial services licence, and ASIC has greater powers to take action in relation to claims issues. “Previously, the [claims handling] service that insurers had been providing wasn’t regulated,” Ms Curtis says. “It was specifically carved out so that the regulator was limited in what action it could take. “More oversight, and a more consistent approach, and higher standards consistently across the industry should help improve consumer outcomes.” AFCA receives many complaints about claims denied for non-disclosure, and there are regulatory changes happening here, too.

The duty of disclosure has been replaced with a duty to take reasonable care not to make a misrepresentation in consumer contracts.

Ms Curtis says AFCA is still considering the implications of the change, before possibly publishing an “approach document” on the issue next year.

“It’s only just come in, and we don’t expect to see disputes in relation to that issue immediately,” she says. “It will take some time for the contract to be initiated, and then for any potential dispute to arise.

“But we’ll be looking at other jurisdictions and seeing what we can learn from what’s happened there as well, where there’s a similar obligation.”

Consumer groups have expressed concern about insurers relying on non-disclosure to deny motor claims, suggesting that claims and criminal histories could be verified at the point of purchase instead.

Ms Curtis says it’s interesting research on an important issue, but it’s not for AFCA to form a view.

“There can occasionally be inadvertent non-disclosure by policyholders both at policy inception and at renewal. We do see that issue raised in our complaints.

“But the question of whether the [consumer group] recommendations should be acted on is a matter for government, and industry.”

She believes the new General Insurance Code of Practice is a major step forwards, and says codes play an important role in AFCA determinations, including those about claims.

“When we decide on a matter, we decide on what is fair in all the circumstances, taking into account legal principles, good industry practice, industry codes of practice, and previous relevant AFCA decisions.

Dispute referee: AFCA's Emma Curtis

In the 2020/21 financial year…

AFCA received 70,510 complaints 24% related to general insurance Only 7% of closed complaints went all the way to a decision 77% of complaints that went to determination were found in the financial firm’s favour AFCA employs 782 staff A team of around 120 works on insurance disputes

“So, we’ll have regard to the codes, particularly as that’s what the industry has said they consider to be minimum standards.

“The codes of practice set out timeframes, and they set out clear standards about communicating regularly with the claimant. Those are really important standards and they set a really good pathway to dealing with claims.

“Generally, I think what the insurers have done really well is develop a code that seeks to build trust and build on key concepts of respect, accessibility, and fairness.

“Where things might fall short is where perhaps those code principles could have been followed more consistently.

“The key thing is to live those standards every day, in every claim, in every interaction with the customer.”

Only a very small proportion of general insurance complaints to AFCA relate to brokers, and Ms Curtis says intermediaries should be “encouraged by the numbers”. But she adds it’s important that work continues on the Insurance Brokers Code of Practice review, which has been delayed.

“It is timely to take a good look at it and make sure that those standards are up to date and transparently reviewed,” she said.

AFCA has about 270 COVID-related business interruption complaints that are on hold, waiting for industry test cases to conclude in the court system. Once there is certainty from the courts, Ms Curtis says AFCA will apply those principles to the complaints.

“One of the points of the second test case was to select a sufficiently broad but manageable group of cases that represent common provisions in these contracts, so that the court’s decision will provide guidance we can apply to the matters in dispute before us.”

Ms Curtis rejects suggestions that AFCA has failed in issuing timely determinations on the business interruption disputes.

“One of our goals is to achieve an outcome that is both efficient and effective, with a result as quickly as possible for both insurers and policyholders.

“But due to the complexity and the unprecedented nature of the event, we agreed that these matters could be run as test cases.

“It was considered that as the matters were sufficiently important as well as unprecedented it was more appropriate for a court to determine these important issues to provide a consistent and robust outcome on an issue with significance for industry and consumers.”

Once AFCA makes a determination and it’s accepted by the consumer, it is binding on the financial firm. That has been a reality since the very beginning of the independent claims review process, which was originally founded, funded and managed by the industry.

“Other than for superannuation complaints, currently there is no right of appeal,” Ms Curtis says. “The Independent Review of AFCA, by Treasury, discussed this question and decided that AFCA determinations should continue to not be subject to a merits review. However we’ll be looking at the analysis closely and we agreed in principle with the recommendations the report does make about our ‘forward-looking’ review mechanism.”

She believes it’s important to learn from the data, which points to claims as being “where the friction points are”.

And she believes the most critical issue to address is communication – with customers, but also with AFCA.

“Better communication and engagement with customers throughout the claims handling process could really help address some of those disputes.

“People will come to AFCA for a variety of reasons, or they’ll lodge a dispute for a variety of reasons, including if they had a misconception about what their cover was.

“There may have been no poor conduct by the insurer, but the consumer has the ability to access free, independent, fair dispute resolution.

“From an insurer’s perspective, what that says to me is, could they have handled it differently so that there was a better understanding by the consumer from the outset that the cover was limited?

“Did the fact that it ended up in a dispute mean that there was a breakdown of the relationship, so the trust wasn’t there?

“Is there anything that could have been done differently in managing the claim, even if it wasn’t paid out, to help the consumer understand the reasons why?

“Was there anything that the firm could have done earlier to help resolve the issue without it ending up in dispute resolution?”