This factsheet provides information about how AFCA handles disputes about home insurance claim delays in the context of the COVID-19 pandemic. These principles also apply to other reasons for delays, such as natural disasters.
- What is AFCA’s general approach to claim delays?
- How should an insurer communicate that a claim is likely to be delayed?
- What should an insurer do when issues arise out of its control?
- Have negotiations been open and fair?
- Is a cash settlement appropriate and fair?
- What information might AFCA ask for?
What is AFCA’s general approach to claim delays?
Our general approach to claim delays is set out in other published AFCA Approach documents (such as AFCA's approach to motor vehicle insurance claim delays) which are available on the AFCA website.
The principles underlying our approach to delays can be applied across different insurance product types and contexts.
When a policyholder lodges an insurance claim for damage to an insured property, an insurer should progress the claim fairly, promptly and transparently. AFCA considers that fair and prompt resolution of an insurance claim is part of an insurer’s obligation to act with utmost good faith towards the policyholder.
We understand that the COVID-19 pandemic presents novel challenges for home insurers, but it does not fundamentally change an insurer’s claims handling obligations.
How should an insurer communicate that a claim is likely to be delayed?
In general, an insurer should communicate with their policyholders in a proactive, clear and transparent way.
At the outset of a home insurance claim, the insurer should consider the range of likely disruptions to the claim process due to the pandemic or other factors and clearly communicate these to the policyholder, along with any proposed plan to manage the delays.
To work out an accurate repair timeframe, the insurer should confirm the following with its preferred builder before authorising a repair or rebuild:
- what delays are foreseeable, and any proposed solutions
- whether materials needed are immediately available
- if materials are not available, whether there are alternatives that can be used
- a reasonable estimate for when the relevant materials will be available.
If the preferred builder cannot meet the reasonable needs of the policyholder or the claim, the insurer should consider using another builder.
As the claim progresses, the insurer should proactively stay up-to-date with all relevant government border and movement restrictions and clearly and promptly update the policyholder where appropriate.
The insurer should be transparent with the policyholder about any issues as they arise and proactively communicate about the issues and how the insurer plans to deal with them. The appropriate frequency and detail of communication with the policyholder will vary from case to case, and the General Insurance Code of Practice sets minimum standards for communication.
Where a pandemic-related delay arises, the insurer should provide the policyholder with a clear explanation of why this has happened and, where possible, include supporting evidence (such as information about any applicable governmental restrictions or correspondence from contractors/suppliers).
Where feasible, the insurer should also provide the policyholder with a clear plan or list of options to settle the claim in the event the delays are unlikely to be resolved within a reasonable time.
What should an insurer do when issues arise out of its control?
Apart from communicating with the policyholder as set out above, the insurer should make reasonable attempts to address any impediments to finalising the claim, including proposing alternative solutions to progressing the claim and easing the policyholder’s burden.
Appropriate alternative solutions will depend on all the circumstances of the case.
For example, and without being exhaustive, the insurer may consider:
- authorising repairs by a builder who can meet the reasonable needs of the claim, including a builder not generally used by the insurer
- investigating whether other builders can do the work faster than the preferred builder
- contracting with alternative suppliers of materials or parts (including those in different states or overseas) who may be able to expedite the repair process
- seeking expert advice on alternative repair methods or materials
- completing a temporary repair using alternative materials (where possible) if the material that is not available is not critical to operation or safety, and agreeing to complete the repair within a reasonable timeframe once the material is available
- providing or reimbursing the policyholder for temporary accommodation
- compensating the policyholder for any consequential or non-financial losses (if appropriate)
- proposing a fair cash settlement.
Have negotiations been open and fair?
A delay in the insurer repairing damaged property can be a major burden on the policyholder.
However, the policyholder should also recognise the genuine difficulties that the insurer faces when it cannot complete repairs without significant delay, for example, where materials are not readily available.
AFCA encourages the parties to openly discuss and try to agree on a fair and workable solution in such circumstances.
Is a cash settlement appropriate and fair?
If the insurer offers the policyholder a cash settlement, it must be fair in the circumstances. This means the insurer must exercise its discretion to cash settle in a fair and reasonable way, and the settlement amount must be sufficient for the policyholder to arrange repairs.
During the pandemic, AFCA would normally expect an insurer to authorise work by its contractors rather than cash settle. This is because the insurer is likely able to complete the repairs more efficiently. Further, the policy and the General Insurance Code of Practice provide guarantees about the quality of the works. However, there are circumstances when cash settling a claim is fair in all the circumstances. For example, when:
- it is not practical for the insurer to undertake the repairs due to other works needing to be done that are not covered by the claim
- the complainant insists on a cash settlement or the relationship between the parties has broken down.
Factors we will consider in determining whether the insurer’s cash settlement offer is fair include whether:
- it is based on an agreed, or established, scope of works
- the quote is actionable (i.e., it is available for the policyholder to action using their own builder)
- the policyholder is vulnerable or would otherwise have difficulty arranging the repairs or replacement themselves
- there are any alternative solutions available to progressing the claim
- the insurer made reasonable attempts to navigate the pandemic-related issue or proposed alternative solutions to progressing the claim, or merely relied on the advice of preferred builders before deciding to cash settle
- the offer includes an allowance for possible future price rises taking into account the time the repairs are likely to commence, additional unforeseen items and/or the transfer of risk to the policyholder
- the policyholder can reasonably have the repair completed by a builder in a timely manner based on the amount offered
- the offer incorporates all other benefits that may be applicable to the claim (e.g., temporary accommodation, removal and storage of contents, professional fees, etc.)
- the policyholder is agreeable to the offer or there is no other viable resolution to reasonably consider.
Where the insurer is ready, willing and able to do the repairs, but the complainant insists on a cash settlement, AFCA may consider it fair to base any settlement on the insurer’s quote, even if the quote is only actionable to the insurer.
What information might AFCA ask for?
To help us resolve disputes about building claims affected by delays, we will ask insurers to provide us with information. This may include the following:
- the policy documents (PDS and certificate of insurance)
- a chronology of events, including copies of key correspondence between the complainant and the insurer’s representatives
- a submission from the insurer in response to the specific claims handling issues raised by the complainant
- claim file notes (if relevant)
- relevant loss adjuster, repairer, assessor and supplier notes and correspondence and assessment reports completed (may not be requested in each case)
- where the insurer says there was a delay or other factors which were out of its control:
- any evidence to establish this (such as correspondence, research, notes, official government advice)
- an explanation – together with supporting evidence – of what the insurer did to respond to the issue (such as briefing alternative contractors, obtaining materials from alternative suppliers, seeking expert advice on alternative repair methods or materials)
- an explanation – together with supporting evidence – of whether the insurer considered or proposed any alternative ways to progress or settle the claim fairly
- an explanation – together with supporting evidence – of what, if anything, the insurer did to compensate the complainant or alleviate their inconvenience.
- where a cash settlement is offered, provide evidence to establish it was fair, in particular:
- an explanation as to why a decision was made to cash settle the claim, together with supporting evidence
- confirm whether the insurer’s settlement offer takes into account:
- an agreed, or established, scope of works
- a current and actionable quote
- any repair risks, or the likelihood of unforeseen damage and/or additional work
- any additional costs likely to be incurred during repairs
- the complainant’s loss of a lifetime repair guarantee on repairs
- builders' margins and project management fees
- all additional policy benefits (such as temporary accommodation, council fees, any fees for approvals or certifications).