Making a claim

Contributed by PhilippaMartin and current to 1 May 2016

As soon as possible following the event giving rise to the claim, policyholders must:

• inform the insurer of the incident. Notification may first be made by telephone and should be followed up in writing. The written notice needs to include all relevant details of the incident
• complete a claim form. The insurer will issue a claim form to the policyholder when necessary
• provide any documents or records supporting the claim. Records such as incident reports, receipts, valuations, serial numbers, photographs, statements etc should be obtained as soon as possible and sent to the insurer. Maintain a complete record of all information, including copies of documents, provided to the insurer.

The policy document should detail the claims procedure. The insurer will often appoint a loss adjuster or loss assessor to assess the extent of its liability and the amount of loss or damage.

Loss adjusters/assessors are required to act fairly when dealing with the claim. The insured is obliged to cooperate with the loss adjuster/assessor.

Before lodging a claim, it is worth considering any potential drawback such as an excess payment or increased premiums.

With motor vehicle insurance,by making a claim, the policyholder may lose part or all of their no-claim bonus. This means the price of their premiums could go up in the next years.

When an insurance company does not have to pay

An insurer may refuse to pay a claim if it is fraudulent or where the policyholder intentionally acted to cause the loss or event insured against. A fraudulent claim is one that has been:

• deliberately exaggerated
• made by somebody who knows they are not entitled to make a claim
• made with deliberate intent to defraud the insurer.

However, even where fraud is established, the policyholder has a right to ask the insurer to pay the claim or part of it. If the fraud is relatively insignificant and non-payment of the claim would be harsh and unreasonable to the policyholder, the insurer may be required to pay the claim. See also below in the section on the Financial Ombudsman Service.

It is a criminal offence to knowingly make a false claim under an insurance policy and insurance companies are entitled to report the matter to the police. If the insurer becomes aware of a false claim, it can ask a court to order the policyholder to repay all the money received under the claim.

Sometimes an insurer refuses to pay a claim because it suspects that the policyholder has behaved in a way that constitutes a breach of the policy. The insurer may only refuse to pay the claim if the policyholder's behaviour relates to the loss claimed under the policy. If the policyholder can prove there is no connection between their behaviour and the loss, the insurer may not refuse to pay. If part of the loss was caused by the policyholder's behaviour, the amount of the claim may be reduced accordingly.

No claim bonus

No claim bonuses apply to motor vehicle and house and contents insurance. They work by reducing premiums when the policyholder to remains claim free.

If no claims are made, the policyholder earns a discount on the premium calculated on a set scale. A no claim bonus scheme is an incentive to the policyholder not to make a claim for minor losses.

If a claim is made, the insurer will not automatically withdraw the entire no claim bonus. In some instances, a claim will not have any effect on a no claim bonus.

Excess or deductible amount

With claims, the insurer is not required to pay the whole claim and may deduct an amount called the excess or deductible. This amount of the excess is set out in either the policy or schedule.

Subrogation

Once an insurer pays a claim it is usually entitled to assume all of the policyholder's legal rights with respect to the subject of the claim. This is known as subrogation. For example, where a policyholder's property has been destroyed or damaged due to another person's negligence, the insurer, on paying the claim, steps into the shoes of the policyholder and may take any legal action that the policyholder may have been entitled to make. If the policyholder's property is totally written off, the insurer is entitled to the what is left of the damaged property, and to claim the difference from any third party who caused or contributed to the loss or damage. For example insurers will often pursue legal action against the driver of a car who caused damage to the policyholder's car.

Policyholders must co-operate with the insurer that takes action against a third party - this is an implied term but is also often stated in most insurance contracts. This includes allowing legal proceedings to be commenced in the policyholder's name. Policyholders cannot interfere with or prejudice an insurer's rights by admitting liability or signing a release. A release is a document that states the person agrees not to sue that person or legal entity. If the policyholder breaches any of these terms, the insurer is able to claim from them any loss sustained as a result of that breach.

An insurer that pays a claim for material damage or liability cover is generally entitled to recover from a negligent third party any money paid to the policyholder. The insurer is also entitled to claim or recover any losses sustained by the policyholder but not covered by the policy (including the excess). Money recovered must then be passed to the policyholder.

Disputes

Policyholders have the following options to resolve a dispute with their insurer or insurance broker:

• making a complaint direct to the insurer or broker
• lodging a dispute through the Financial Ombudsman Service
• complaing about breaches of the service standards in the relevant Code of Practice
• commencing legal action to enforce their contractual rights
• complaining to government regulatory agencies such as the Australian Security Investments Commission.

Policyholders may choose more than one option and the most appropriate process to choose will depend upon the nature of the dispute or complaint.

Making a complaint

Policyholders and third party beneficiaries can complain direct to the insurer where they consider that the insurer or their agent (authorised representative) has failed to provide a good service. The General Insurance Code of Practice sets the standards of service for general insurers and their authorised representatives. The Code of Practice sets standards including timeframes around:

• buying insurance
• cancelling insurance
• claims handling
• financial hardship
• catastrophes
• complaints and disputes processes and
• access to information

The Code applies to agents of the insurer as well as service suppliers such as loss assessors, investigators and collection agents.

The Code requires insurers to deal with complaints in a fair, transparent and timely manner and sets up a two stage (internal) process and a 45 day time limit for resolution of the complaint. This process is called internal dispute resolution or IDR.

People wanting to complain can complain direct to the insurer or to the Financial Ombudsman Service (FOS). FOS will refer the matter back to the insurer if no internal dispute resolution process has taken place. The same 45 day time limit for the resolution of the complaint will apply. The benefit of complaining straight to FOS is that they register the complaint and monitor the time limit. If the consumer is not satisfied with the outcome, they may elect to take the matter through the FOS process.

Financial Ombudsman Service

The Financial Ombudsman Service (FOS - http://www.fos.org.au/) is the External Dispute Resolution (EDR) scheme that assists policyholders to resolve disputes with insurers.

The Financial Ombudsman Service is funded by insurance companies. There are consumer and government representatives on its Board of Directors, although insurance industry representatives dominate. The Board of Directors manage FOS and determine its terms of reference. However, if the complaint proceeds to determination an Ombudsman or a panel (generally made up of a consumer representative and an industry representative and chaired by an Ombudsman) will make the final decsion. The are many advantages for consumers to lodge a complaint with FOS, including:

• there is no cost (to the policyholder)
• the policyholder does not need a lawyer
• staff at FOS are familiar with insurance law
• FOS staff can investigate complaints and also refer issues with breaches of the Code to Code Governance Committee.

Another advantage to the consumer is that FOS determinations are not binding on the policyholder. If the policyholder is dissatisfied with the decision, they can reject it and pursue court action. On the other hand FOS determinations are binding on the insurer.

The insurer involved in the complaint must pay a fee at each stage of the FOS resolution process. The fee provides the insurer with a financial incentive to resolve a dispute (especially those involved small amounts of money) early and to avoid the risks and costs of legal proceedings.

FOS determinations are not binding precedents; each case turns on its own facts. However FOS decisions apply the law. FOS determinations are published on the FOS website. The FOS Circular is particularly useful because it provides practical information and reports on decisions in key areas of disputes so policyholders and lawyers can see what considerations FOS takes into account when applying the law. The FOS Circular is published every three months on the FOS website.

What complaints can be taken to the Financial Ombudsman Service (FOS)?

The FOS Terms of Reference set out the kinds of insurance disputes that it will help resolve. FOS Terms of Reference allow it to assist with disputes about entitlements to benefits under life insurance policies and certain types of general insurance policies - retail insurance, residential strata, small business and medical indemnity policies. Most commonly FOS will assist with disputes about an insurer's refusal to pay a claim or arguments about the amount that should be paid under a claim in respect to their members. FOS is able to deal with disputes between beneficiaries under policies even if the beneficiary is not the policy holder for example disputes between beneficiaries of life insurance where the insured person has died.

FOS cannot handle disputes about the cost of premiums or about an insurer's decision to refuse to provide a policy except if the consumer alleges that the refusal was malicious or based on incorrect information.

Schedules 1 and 3 of the Terms of Reference set the following limits to the amount of damage or loss which can be awarded through the FOS process:

• Life insurance $8,300 per month
• Third part Motor vehicle $5,000
• Claims against insurance brokers $166,000
• Other $309,000
• Consequential loss and damage $3,300 per claim

There are Operational Guidelines to the FOS Terms of Reference which interpret the Terms of Rererence and explain how they work on a practical level.These Operational Guidelines are available on the FOS website.

Chapter 11 of the FOS Terms of Reference requires FOS to identify and act on systemic issues. Systemic Issues are defined as issues which may affect more than one consumer and go beyond the particular dispute. The Terms of Reference require FOS to advise the insurer that a systemic issue has been identified, to work with the insurer to identify all customers who have been affected, to provide those consumers with individual remedies as well as to work to ensure that the issue does not arise again. FOS may report systemic issues to ASIC.

Where FOS does not have jurisdiction to resolve a particular dispute (for example it may be about the standards of service provided by a particular insurer) and the actions of the insurer may consitute a breach of the Code, it may refer the subject matter of the dispute to the Code Governance Committee. FOS has a separately funded and operated arm called the FOS Code Compliance and Monitoring Team (FOS Code) which provides monitoring and administratice support to the Code Governance Committee. Because FOS receives a large number of complaints it is able to identify repeated and significant breaches of the Code. Consumers can complain direct to the FOS Code (info@codeofpractice.com.au or by calling FOS and asking to speak to the FOS Code's Investigation Manageer. Complaints to the FOS Code may not result in a benefit for the individual consumer. However the complaint may result in improvements to service levels and practice within the insuer or across the insurance industry.

Allegations of fraud

Where the insurer has cited fraud as a reason for refusing the claim, the complaint is referred to an Ombudsman at an early stage. The Ombudsman will decide whether an interview is required to clarify the dispute and ensure that the parties are aware of the issues raised by the dispute and also to ensure that the policyholder is aware of the allegation of fraud. In disputes alleging fraud, the Ombudsman will usually hold an informal interview and will usually interview both parties at the same time. At the interview there will be an opportunity to discuss the issues and also to provide new information relevant to the dispute. Consumers who have been refused a claim on the basis of an allegation of fraud should get legal advice as soon as the allegation has been made.

Time limits

The time limits for making a complaint about an insurer to FOS are 6 years from the time the policyholder became aware of the decision that caused them loss (eg the refusal to pay the claim). If the dispute has been through internal dispute resolution, the time limit is 2 years from the date of that internal dispute resolution decision.

The FOS process

FOS has many useful fact sheets on its website including those which outline each step of the dispute resolution process. There are three main stages in the FOS process:

Registration and Referral

On receipt of a complaint FOS will refer it back to the insurer and request a response. If the complaint has already gone through the insurer's internal dispute resolution process they have 21 days to respond. If the complaint is made to FOS direct, the insurer will have 45 days to respond. At this first stage, FOS does not make an assessment of whether the complaint comes within its Terms of Reference.

Case Management

If the complaint is not resolved it will proceed to Case Management. FOS will assess whether the complaint comes within its Terms of Reference and if it does not, FOS wiill notify the consumer. A FOS case manager (known as a case owner) will be allocated to the dispute and they will try to resolve the dispute through negotiation, arranging a concilation conference (generally on the phone) and if the complaint remains unresolved, the case manager may give an opinion on the legal strengths of each party's position in the dispute. The FOS Terms of Reference allow for FOS to provide a Recommendation in writing at this stage.

Determination

The determination is the formal aspect of the FOS process and the decision maker(s) will take into account all the information provided by the parties at each stage of the process. They will also take into account the law (for example the Insurance Contracts Act and any caselaw) and the relevant Code of Practice. The determination will be made by a single Ombudsman or a Panel of three people depending on tis complexity and significance and the expertise needed to determine the dispute. For example, in cases of medical indemnity a Panel including a mdical representative and a medical indemnity insurer may be convened.

If the complaint is resolved at any stage of the FOS process FOS will assist with the documents required to confirm the settlement. In some cases an insurer may require a deed of settlement. If the dispute has been determined, any deed or settlement documents must be consistent with that determintion.

If the complaint is not resolved after the FOS process, the consumer may take action through the courts. Insurers are bound by any FOS determination which means that they cannot appeal or seek a different outcome through the courts.

Interview and investigation

FOS terms of reference allow it to take other steps to assist it to resolve the dispute. This includes asking a policyholder or insurer (or both) to attend an interview or asking the insurer to investigate further including by appointing an independent investigator. FOS can ask a policyholder to attend an interview if it considers it necessary to do so to clarify the facts or issues in the dispute and if doing so through an interview is the most efficient way. Policyholders who have difficulty expressing themselves in writing or in English may ask for an interview. If FOS decides to hold an interview they can organise a language or sign interpreter.

FOS will require the insurer to investigate a matter further to to appoint an independent expert to report on a matter raised by a dispute where it considers it reasonable to do so - for example where it would have been reasonable for the insurer to have obtained the report to assess the claim.

Disputes with brokers

The Financial Ombudsman has the power to deal with disputes between policyholders, consumers and insurance brokers. Disputes arising from the broker's failure to pass on information to the insurer or a broker's misunderstanding of the consumer's needs are dealt with through the same dispute resolution process outlined above. The FOS Terms of Reference limit awards of damage or loss in claims against insurance brokers to $166,000.

The FOS Code Compliance and Monitoring Team plays the same monitoring and administration role of the Insurance Brokers Code of Practice as it does with the General Insurance Code of Practice. Complaints about an insurance broker's standards of service can also be made to info@codeofpractice.com.au.

Court action against the insurer or insurance broker

Consumers and policy holders are strongly encouraged to take up dispute resoluction options through FOS before commencing court action. Court action is costly and may not result in a better outcome. Those considering court action should get legal advice.

Contacts

Financial Ombudsman Service

GPO Box 3, Melbourne, VIC 3001
Freecall: 1800 367 287
Fax: (03) 9613 6399
Email: info@fos.org.au
Website: http://www.fos.org.au/

Insurance Council of Australia

PO Box R1832, Royal Exchange, Sydney, NSW 1225
Freecall: 1300 728 228
http://www.insurancecouncil.com.au/

National Insurance Brokers Association of Australia

Level 11, 20 Berry St, North Sydney NSW 2060
Ph: (02) 9459 4300
www.niba.com.au

Australian Prudential Regulation Authority

GPO Box 9836, Sydney, NSW 2001
Information Hotline: 1300 13 1060