Claims handling is the most critical part of the insurance process for many consumers. Unfortunately, ‘legal loopholes’ have caused undue stress and delayed resolutions for too many consumers in their time of need.
Consumer Action Law Centre (Consumer Action) has supported removing the insurance claims handling exemption, consistent with Recommendation 4.8 from the Banking Royal Commission’s final report in its comment on the Treasury’s consultation paper on Insurance Claims Handling: Taking Action on Recommendation 4.8 of the Banking, Superannuation & Financial Services Royal Commission, March 2019.
While it seems logical that insurance companies would be bound by the same regulatory standards as other financial products and services, this is not the case. Insurers are not required to handle or settle customer’s insurance claims efficiently, honestly or fairly thanks to a carve-out negotiated by the insurance industry.
As we witnessed during the Banking Royal Commission hearings last year, self-regulation within the financial services sector has continually failed consumers. This is further evident by examining data from complaints handling bodies: Over 8,603 general insurance disputes were lodged with the Financial Ombudsman Service (FOS) in 2017-18.
This trend has continued since the establishment of the new Australia Financial Complaints Authority (AFCA), with 4,194 claims-related disputes lodged in AFCA’s first five months of operation.
Drawn-out insurance claims handling can cause significant detriment to consumers, particularly those experiencing vulnerability or disadvantage. Consumers should be able to expect the same standard from claims handling as they can expect from other financial services.
Closing this legal loophole will mean that claims handling must be provided ‘efficiently, honestly, fairly’ and with improved oversight by ASIC. This will help Australians receive fairer outcomes and an easier process at claims time.
We must also ensure that further exemptions and qualifications are not created that would cause further issues for consumers.
Consumer Action’s submission recommends:
- empowering ASIC to monitor insurance pricing to ensure that costs of rectifying insurers’ misconduct, and implementing Royal Commission recommendations, are not passed on to insurance customers;
- requiring by law that life insurers to only request information relevant to the claimed condition when assessing a claim;
- ensuring that the implementation of Recommendation 4.8 of the Financial Services Royal Commission Final Report is consistent with Recommendation 7.3; and
- ensuring that any further tailoring of the model for implementation of Recommendation 4.8 be subject to consultation.