Last week, the Australian Financial Complaints Authority (AFCA), said its “top issue” across the entire financial services sector in 2022-23 – a record year for consumer complaints – was delays in insurance claim handling.
The regulator reported that complaints about claims delays were up more than 75% - most of them not to do with flood or fire claims. Across the segment, general insurance complaints rose by 50% to almost 28,000. However, the life insurance sector received a positive report card: their complaints number dropped by nearly 25% to just under 1,900.
AFCA’s CEO and chief ombudsman, David Locke (pictured above), said the rise in complaints reflects, among other issues, the community’s growing financial stress and issues with insurer claims handling.
Despite general insurers’ public declarations about improving claims processes, the AFCA report suggests that some insurance companies are failing to meet consumer expectations and instead going backwards – and not just in their claims processes.
Insurance Business reached out to Australia’s biggest insurers for comment: Insurance Australia Group (IAG), QBE, Suncorp and Allianz Australia. IAG and QBE referred IB to their representative body, the Insurance Council of Australia (ICA). Allianz has provided responses that will publish in an article later this week.
In response to IB, the ICA sent a statement.
“The Insurance Council of Australia (ICA) acknowledges the latest data from the Australian Financial Complaints Authority (AFCA) today,” said an ICA spokesperson. “The ICA is aware of some delays in claims processing both from catastrophes and general insurance claims, however, it must be noted the significant pressure last year’s floods put on insurers’ systems and processes, which are used to respond to all insurance claims, as well as a shortage of experts required to assess and manage claims and building and labour supply constraints.”
The spokesperson said the February-March 2022 flood was the “costliest extreme weather event” in Australian history.
“Insurers work hard to look after customers and to finalise claims as quickly as possible, but they are also required to complete all necessary reports to make an informed claims decision, whether it be from a declared event or a general insurance claim,” said the ICA spokesperson. “This is reflected in AFCA’s own data, which shows 76% of claims lodged with AFCA last year were found in favour of insurers.”
The spokesperson said the ICA has announced its own review of insurers’ response to the 2022 floods to “identify lessons learned.”
“Insurers’ response timeframes, resources deployed, claims handling, complaints handling, communication with policyholders, and engagement with stakeholders will all be examined as part of the review, which is expected to be completed in October,” said the ICA spokesperson.
The Council of Australian Life Insurers (CALI) sent IB its response to the AFCA complaints report.
“Pleasingly, according to AFCA’s complaints data, consumer complaints in relation to life insurers have dropped 24% compared with FY22,” said a company spokeswoman in statement. “This decrease coincides with the substantial investment the life insurance industry has made in improving internal processes and practices ahead of the commencement of the Life Insurance Code of Practice (Life Code) on July 01 2023.”
In addition to these improvements, the spokeswoman said, the life insurance industry “remains committed” to working with superannuation fund trustees to continuously improve claims handling in superannuation.
“Australians rightly expect claims made about life insurance, including life insurance held within superannuation, to be dealt with quickly and efficiently,” said the spokeswoman. “The life insurance industry takes these consumer expectations seriously, especially given the rising cost-of-living pressures facing everyday Australians.”
The spokeswoman also referred to “the rigorous consumer protection provisions in the Life Code.”
Under this code, life insurers are required “to efficiently progress claims through their claims management process, including regularly communicating to consumers about the status of the claim.”
The Code is monitored by AFCA’s Life Code Compliance Committee (LCCC).
“It has significant powers to impose sanctions on organisations subscribed to the Life Code, including imposing financial penalties against life insurers,” said the CALI spokeswomen.
IB has asked AFCA for any details on recent LCCC sanctions against life insurance companies, if any.
The drop in complaints against life insurance companies does suggest improvements in that industry’s internal practices and processes. However, the rise in general insurance complaints suggests those firms are still struggling to deal with the increased pressure natural catastrophes put on their general business.
In a January interview with IB, Prue Monument, general manager of Code Compliance and Monitoring for the General Insurance Code Governance Committee (GICGC), said catastrophes should no longer be catching insurers by surprise.
“If this is the new normal, insurers need to adjust accordingly,” she said.
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