Last week, the Australian Financial Complaints Authority (AFCA) held a virtual Member Forum for its thousands of stakeholders, including insurance firms. The Forum’s general insurance update included a focus on two key trouble spots for insurers and brokers: the expert reports used for property claims and wear and tear exclusions.
Government inquiries and consumer advocates have repeatedly questioned the quality of insurers’ expert reports and the fairness of wear and tear exclusions.
For example, the recently announced recommendations from the federal inquiry into insurers’ response to the 2022 floods. The inquiry’s chair, Daniel Mulino MP, is calling for “Clearer regulatory guidance in relation to the preparation of expert reports where these impact on the decision as to whether to grant a claim.”
AFCA ombudsman Chris Liamos (pictured above) suggested that the quality of expert reports can vary dramatically.
He said some lack basic details to support their arguments.
“Usually, the issues we see are where the opinion that’s been provided is not clearly substantiated by the reasons, or it doesn’t clearly establish the relevant event that the insurer is trying to rely upon,” said Liamos.
The ombudsman gave the example of a report that said a property was inadequately constructed. However, the expert did not detail what exactly was inadequate or where the construction raised concerns around applicable building standards.
The Ombudsman also said that some reports don’t adequately explain the link - or the lack of a link - between the insurance event and the damage being claimed.
This issue was repeatedly raised during the 2022 flood inquiry. Mulino said expert reports were used to reject many insurance claims on the basis of wear and tear exclusions. However, he said these reports regularly made no clear link between maintenance issues or wear and tear and the observed flood damage.
“So the opportunities for improvement are to really look at making sure the expert is providing good reasoning, analysis and consideration,” said Liamos.
Another issue with some reports, said the ombudsman, is experts providing opinions that are beyond their expertise.
“Some of the things that we’ve seen is that experts can sometimes comment on policy liability, which I think is inappropriate,” said Liamos. “Policy liability is typically a legal question.”
He said when experts go beyond their expertise it can give a perception that they’re not being independent.
Liamos said the quality of an expert report is “the critical factor” when AFCA has to consider competing reports.
“Most critically,” he said the report should provide a clear, rational and logical explanation and rebut any contrary opinions.
The ombudsman also covered AFCA’s main concerns around wear and tear exclusions. He said, not surprisingly, that it is not enough for an insurer to only show that a property or area has wear and tear.
“Most properties will have wear and tear to some degree, depending on their age, unless they’re relatively new,” said Liamos. “The issue is to show that that wear and tear being identified is the proximate cause of the damage being claimed.”
He said this causal link between the wear and tear as the proximate cause, or not, for the damage, is usually the critical issue.
“Where insurers have been unsuccessful in complaints that we’ve seen is because the expert hasn’t necessarily drawn a clear link between the two,” said the ombudsman.
Liamos gave a couple of general examples.
“There was one case involving a flexi hose where a panel had to determine whether or not a burst flexi hose was due to wear and tear,” he said. “The expert evidence had identified rust in the pipe, and as he said, based on that, the damage was caused by wear and tear.”
However, the panel found that there was no clear explanation of how the rust caused the pipe to burst.
“That ultimately was a situation where, yes, there was wear and tear, but not a clear link and meant the insurer hadn’t met its onus to establish the exclusion,” said Liamos.
In contrast, for another disputed case involving a soft top convertible and its comprehensive car policy, the insurer’s expert provided “a good, detailed report.”
“The complainant had alleged that a towel that had been stuck in the roof mechanism and was a cause of the damage, and had provided a repairer’s opinion and support,” he said.
“An expert had done a comprehensive inspection of the relevant vehicle and identified frayed and broken cables in the mechanism that had worn down,” said Liamos.
The expert also identified that this issue was a common failure for this type of car. They also discussed the towel’s composition and where it was placed and said it would not have been sufficient to cause the damage.”
“So that was a good report that provided a clear, rational, reasonable explanation that not only addressed the cause, but rebutted the reasonable argument put by the complainant and persuaded the decision maker,” said the Ombudsman.
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