Making a claim

Contributed by PhilippaMartin, as amended by Anonymous and current to February 2025

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 if requested by the insurer. The insurer will issue a claim form to the policyholder when necessary
• do not complete repairs or dispose of damaged items until you have obtained insurer approval, unless this is necessary to secure your premises or for health and safety reasons (if so, please take photographs or videos if safe to do so, and if contractors are involved retain proof of payment)
• 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.

If you are not sure what to do, check your policy documents or ask your insurer. The product disclosure statement will usually have a section explaining what you should do, and what happens next when you make a claim.

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 may not have to pay

Breach of duty of care upon entering into insurance contract

When taking out insurance, an insured has a legal duty to take reasonable care not to make a misrepresentation. This requires any questions the insurer asks before providing cover truthfully and accurately, otherwise the insurer may be able to reduce or refuse to pay a claim, cancel the policy or both (Insurance Contracts Act 1984 (Cth) section 20B).

Conditions not met / exclusions apply

An insurer may refuse to pay if, according to the policy documents, a condition for the claim is not met or if an exclusion applies. An example might be if an unattended car is stolen while the keys were left inside. It is always important to check the policy and product disclosure statement carefully before entering into a contract to get an understanding of the limitations of the insurance cover.

Fraudulent claims

Furthermore, an insurance may refuse to pay if the claim 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.

Where fraud is established, an insurer can decline the claim and avoid the insurance policy, meaning it can treat the policy as if it never existed.

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 Australian Financial Complaints Authority.

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. In such circumstances, 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 (Insurance Contracts Act 1984 (Cth) section 54).

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.

In the event of a claim, an insurer cannot refuse to pay a claim if the insured cannot pay the applicable excess. Instead, it must either deduct the excess from the settlement amount or provide the insured with options to pay the excess through instalments.

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, and unless the policy provides otherwise, 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.

Codes of Practice

The General Insurance Code of Practice was introduced by the Insurance Council of Australia as a voluntary code and it has been regularly reviewed and updated since. It sets out the standards general insurers must meet when providing services to their customers, and also sets out timeframes for insurers to respond to claims, complaints and requests for information from customers.

The Life Insurance Code of Practice requires financial firms offering life insurance products and other industry participants who have adopted the code to comply with the standards set in relation to many features of the customer’s relationship, including when buying insurance, what to expect when making a claim and applicable processes and timeframes.

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 Australian Financial Complaints Authority (AFCA), which is a free 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. Insureds are expected to attempt resolving their dispute through the financial firm’s internal dispute resolution process before complaining to AFCA, unless their matters are urgent or are in relation to delays or other service-related issues.

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 an internal dispute resolution (IDR) process and a 30 day time limit for resolution of the complaint.

People wanting to complain can complain direct to the insurer or to the Australian Financial Complaints Authority (AFCA). AFCA 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 AFCA 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 AFCA process.

Australian Financial Complaints Authority

The Australian Financial Complaints Authority (AFCA) is the External Dispute Resolution (EDR) scheme that assists policyholders to resolve disputes with insurers (see AFCA website here).

The Australian Financial Complaints Authority is funded by member financial firms. The Board of Directors manage AFCA 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 decision. The are many advantages for consumers to lodge a complaint with AFCA, including:

• there is no cost (to the policyholder)
• the policyholder does usually not need a lawyer
• staff at AFCA are familiar with insurance law, policies and industry practice
• AFCA staff can investigate complaints and also refer issues with breaches of the Code to ASIC.

Another advantage to the consumer is that AFCA 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 AFCA determinations are binding on the finanical firm who must resolve the complaint in accordance with the determination if the insured accepts it..

The insurer involved in the complaint must pay a fee at each stage of the AFCA resolution process. This may provide 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.

AFCA determinations are not binding precedents; each case turns on its own facts. However AFCA decisions apply the law. AFCA determinations are published on the AFCA website, which also includes important updates, useful guidance and relevant publications.

What complaints can be taken to AFCA?

The AFCA Rules set out the kinds of insurance disputes that it will help resolve. The AFCA Rules 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 AFCA 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. AFCA 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.

AFCA cannot handle disputes about the cost of premiums, unless the complaint concerns non-disclosure, misrepresentation or incorrect application of premium, 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.

The Rules set the following limits to the amount of damage or loss which can be awarded through the AFCA process for complaints submitted on are after 1 January 2024 (different limits apply to complaints submitted before):

• Income stream insurance $16,900 per month
• Uninsured Motor vehicle $19,000
• Claims against insurance brokers $316,000
• Any other claims (excluding superannuation complaints) $631,500
• Indirect financial loss $6,300 per claim
• Non-financial loss $6,300 per claim

Award limits are different from monetary restrictions on AFCA’s jurisdiction per claim, which means AFCA cannot consider complaints where the claim value exceeds the applicable monetary limits set by its Rules.

There are Operational Guidelines to the Rules which explain how they work on a practical level.

The Rules and Operational Guidelines (current and previous versions) are available on the AFCA website.

The Rules require AFCA 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 Rules require AFCA to advise the insurer that a systemic issue has been identified and work with the insurer to identify all customers who have been affected, towards providing those consumers with individual remedies as well as to work to ensure that the issue does not arise again. AFCA may report systemic issues to ASIC.

Where AFCA 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. AFCA has a separately funded and operated arm called the AFCA Code Compliance and Monitoring Team (AFCA Code) which provides monitoring and administrative support to the Code Governance Committee. Because AFCA receives a large number of complaints it is able to identify repeated and significant breaches of the Code. Consumers can complain direct to the AFCA Code Team (info@codecompliance.org.au or by calling AFCA and asking to speak to the AFCA Code Team).

Complaints to the Code Team may not result in a benefit for the individual consumer. However the complaint may result in improvements to service levels and practice within the insurer or across the insurance industry.

What will AFCA do

AFCA will generally try to resolve a complaint by informal methods. This includes facilitating negotiations between the parties or conciliation a complaint by holding a conciliation conference.

AFCA can request any information it considers relevant to the issues in dispute, and require a party to do anything else AFCA considers may assist AFCA’s consideration of the complaint.

If reasonable attempts to resolve a complaint by these methods do not succeed, AFCA may provide a preliminary assessment, which addresses the issues in dispute and outlines what the likely outcome may be based on the available information. If either of the complaint parties do not accept the preliminary assessment, the complaint will progress to the final stage, where an AFCA decision maker will provide a final decision called a determination.

Sometimes, AFCA may proceed immediately to determination, depending on the nature of the complaint and it if it unlikely to resolve by other means.

AFCA may decide that it is not appropriate to continue to consider a complaint, such as when the complaint is without merit, the financial firm has committed no error, or the complaint falls outside the scope of AFCA’s Rules jurisdiction.

Allegations of fraud

Where the insurer has cited fraud as a reason for refusing the claim, the complaint is directly referred to an Ombudsman.

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 AFCA 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 AFCA process

AFCA 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 AFCA process:

Registration and Referral

On receipt of a complaint AFCA will refer it back to the insurer and request a response to be provided to both AFCA and the complainant by a specified date.

At this first stage, AFCA does not make an assessment of whether the complaint falls within the scope of its Rules jurisdiction.
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Case Management

If the complaint is not resolved it will proceed to Case Management. AFCA will assess whether the complaint falls within its rules jurisdiction and if it does not, AFCA will notify the consumer. If the complaint falls within its Rules, an AFCA case worker (known as a dispute resolution specialist) will be allocated to the dispute and they will try to resolve the dispute through. If they are unable to resolve the dispute through negotiation, conciliation or through a preliminary assessment, the complaint will progress to determination.

Determination

The determination is the final stage of the AFCA complaint process. It is a final decision, 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 applicable legal principles) and the relevant Code of Practice. The determination will be made by a single Ombudsman or a Panel depending on its complexity, significance and the expertise needed to determine the dispute. For example, in cases of medical indemnity disputes, a Panel including a medical representative and a medical indemnity insurer may be convened.

If the complaint is resolved at any stage of the AFCA process, an insurer may require a deed of settlement. If the dispute has been determined, any deed or settlement documents must be consistent with that determination.

If a complainant does not accept an AFCA determination, they retain their legal rights to challenge the insurer’s decision in an appropriate forum, such as court. Parties should seek legal advice if such circumstances arise.

Insurers are bound by AFCA determinations which means that they cannot appeal or seek a different outcome through the courts, except in limited circumstances.

Disputes with brokers

AFCA can 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 limit for awards against insurance brokers is $316,000 for complaints submitted to AFCA on or after 1 January 2024, for complaints submitted before this date lower limits apply.

The AFCA Code 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@codecompliance.org.au.

Court action against the insurer or insurance broker

Consumers and policy holders are strongly encouraged to take up dispute resolution options through AFCA 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

Australian Financial Complaints Authority

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