Litigation through the court process is one way of resolving insurance disputes, but it is often costly and time consuming. A number of organisations deal with various kinds of insurance disputes so long as the complaint is not or has not been referred to the courts. They provide a number of alternatives to litigation for policyholders. The Insurance Code (s 10) sets out processes for the internal and external resolution of disputes with insurers.
The Financial Ombudsman Service (FOS) assists to resolve disputes between consumers and member financial services providers. Any financial service provider conducting business in Australia can be a member of FOS. The dispute resolution process covers financial services disputes involving those relating to banking, credit loans, general insurance, life insurance, financial planning investments, stockbroking, managed fund and pooled superannuation funds.
FOS is a free national service available to all consumers. From 1 July 2018, FOS’s functions will be rolled into the Australian Financial Complaints Authority.
In respect of insurance disputes, FOS can only consider a dispute that arises from or relates to an entitlement or benefit under a general insurance policy by a person who is specified or referred to in the policy (whether by name or otherwise) as a person to whom the policy extends.
There are limitations in respect of a general insurance policy. FOS may only consider a dispute in relation to a general insurance policy that is either a:
a retail general insurance policy (this includes the insurances listed in “Eligible contracts”);
b residential strata title insurance product;
c small business insurance product; or
d medical indemnity insurance product.
Other disputes with insurers and insurance brokers may be dealt with but only with the agreement of all parties. In respect of a general insurance policy, FOS may not consider a dispute about rating factors and weightings the insurer applies to determine the insured’s or proposed insured’s base premium, which is commercially sensitive information.
There are limitations in respect to insurance disputes. FOS may also not consider a dispute regarding a decision to refuse to provide insurance cover except in the circumstances where the dispute is that the decision was made indiscriminately, maliciously on or the basis of incorrect information, or where the dispute relates to medical indemnity insurance cover.
Since 1 January 2015, FOS has been able to accept claims up to $500,000. However, the maximum total FOS can award is:
• for claims made on life or general insurance policies dealing with income stream risk or similar advice: $8,300 per month;
• for uninsured third-party motor vehicle accident claims: $5,000;
• for claims against a general insurance broker (except where the claim relates solely to a life insurance policy): $166,000; and
• for all other claims: $309,000.
FOS first encourages consumers to attempt to resolve their dispute through the insurer’s internal dispute resolution process. If this is not successful, consumers must then contact FOS and they will assess whether they can handle the dispute.
FOS may initially manage the dispute through negotiation and conciliation. Otherwise, FOS will investigate the claim and issue a recommendation. In assessing a dispute, FOS will take into account legal principles, applicable industry codes and guidelines, good industry practice and previous relevant decisions of FOS. FOS may also take into account specialist input.
A recommendation is a preliminary decision on the merits. FOS will ask the parties to consider the recommendation and consider accepting it. Parties have 30 days to agree on the recommendation. Otherwise, FOS will proceed to a determination. A determination is a final decision on the merits. (For information about merits reviews, see Appealing government and administrative decisions.)
Consumers are not bound to accept a determination of FOS. However, if the consumer wishes to accept a determination, it must inform FOS and the financial services provider within 30 days.
Financial services providers are bound by a determination of FOS.
For the FOS’s contact details, see “Contacts”.
Small claims are now heard in VCAT’s Civil Claims List (see “Small claims: VCAT’s Civil Claims List” in Taking action as a consumer).
VCAT offers a simple and inexpensive way for policyholders to resolve disputes. It may not hear a claim that has already been taken to court.
VCAT will arrange for a hearing of the policyholder’s dispute and policyholders may seek legal help to prepare themselves for the hearing. In small claims, the policyholder (and insurer) will not be able to have a lawyer act for them at the hearing but may be represented by a friend or by a worker from a community organisation.
For information about fees for referring matters to VCAT and all other enquires, contact VCAT directly (see “Contacts”).
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of banks and other authorised deposit taking institutions, insurance companies and superannuation funds. It is a statutory authority whose board includes representatives from the Reserve Bank and the Australian Securities and Investments Commission.
Policyholders who believe their grievance has not been properly managed by the insurer should contact APRA for advice. APRA will not resolve the dispute but will advise the policyholder on the appropriate course of action.
Within APRA, general insurers are supervised by supervision groups within both the Diversified Institutions Division and the Specialised Institutions Division. Policy issues are dealt with by the General Insurance Cross Divisional Committee.
For APRA’s contact details, see “Contacts”.