Customer complaints can provide the insights and feedback insurers need to fine-tune their products and processes. Managing them well can also strengthen customer relationships and the insurer’s reputation. 

‘Complaints handling is a crucial first step in the dispute resolution process,’ says Olivia Hua, a lawyer with Sophie Grace Compliance and Legal. ‘It plays a vital role in building business success.’ 

There can also be significant economic benefits. The 2018 Return on Investment of Effective Complaints Management Report from the Society of Consumer Affairs Professionals and the University of Newcastle found that every dollar invested in complaints handling has a potential return of up to A$10 for the organisation — a return on investment of 1,000 per cent. 

Between 1 January 2020 and 31 December 2020, the Australian Financial Complaints Authority (AFCA) received 19,562 general insurance complaints. John Price, AFCA’s Lead Ombudsman for Insurance, believes that many complaints, particularly those concerning the denial of claims, arise because people often don’t understand what their insurance policies cover or their rights under those policies. 

‘Research conducted by the Australian Securities and Investments Commission [ASIC] and the Insurance Council of Australia confirms that few consumers read the Product Disclosure Statement at all and those who do rarely read the full document,’ says Price. 

‘They often don’t understand the extent of cover or the exclusions that might apply until it’s time to lodge a claim.’ 

There can be confusion between an accidental damage policy and an insured events policy and a lack of understanding that, while a policy may refer to additional benefits such as temporary accommodation or removal of debris, that may not be in addition to the sum insured. 

‘When it comes to life insurance, people may struggle to understand just what is meant by a pre-existing condition, particularly where some income disability products or life products are sold without the need for medical information.’ 

A NEW APPROACH TO COMPLAINTS

Recent regulatory reforms were designed to improve consumers’ financial awareness and literacy, along with industry behaviour.

Anyone who handles or settles an insurance claim must have an Australian financial services licence (AFSL) by January 2022. They must also be members of AFCA and have an internal dispute resolution process that complies with the requirements introduced by the new ASIC Regulatory Guide (RG) 271, which comes into force in October this year.  

‘The updated standards and requirements in RG 271 are designed to benefit customers by ensuring they have access to fair and timely complaints handling processes,’ says Hua.

And, more than ever, insurers need to make sure they communicate in a timely manner and listen to what their customers have to say, adds Price.

Price sees the various reforms working together to support a fairer and more consumer-centric model. ‘They also sit neatly with the fairness project we are developing in partnership with the University of Melbourne,’ he says. 

AFCA’s Fairness Project aims to create clarity and certainty for stakeholders about how the organisation assesses what is ‘fair’. 

‘We’ve created a framework that encapsulates the essential elements against which AFCA will assess financial disputes in accordance with our jurisdiction,’ says Price. 

‘It provides transparency in terms of how we exercise our fairness jurisdiction and articulates a framework that supports how we’ll exercise it in our decision-making processes. It will also promote consistency in decision-making.’ 

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