Justin Untersteiner, Chief Operating Officer of the Australian Financial Complaints Authority (AFCA), made the following opening statement to the Inquiry into insurers’ responses to 2022 major floods claims, on 21 February 2024.

We welcome the opportunity to appear before the Standing Committee on Economics today. 

AFCA’s submission to this inquiry draws on our experience as the independent, external dispute resolution scheme for the financial services sector. AFCA and its predecessors have handled complaints about general insurance for more than 30 years.

Since starting operations a little over 5 years ago, AFCA has received more than 420,000 complaints, and helped to secure $1.3 billion in compensation or refunds for consumers. 

In addition, AFCA’s systemic issues work – where it identifies wider issues than a single complaint – has resulted in 4.9 million people receiving more than $380 million.

2022 Floods

Between 1 February 2022 and 14 February 2024, AFCA received 3,994 complaints relating to the major floods that are the subject of this inquiry.

We acknowledge that a range of environmental and other factors have created challenges for the insurance sector during this period. Insurers’ responses to one of the largest catastrophic events – the south-east Queensland and northern New South Wales floods (or CAT 221) – were affected by supply chain issues and labour shortages. A series of other significant flooding events followed during 2022.

The impact on communities, families and individuals has been profound and life altering. Floods are traumatic. Consumers have been displaced from their homes and communities; they have suffered extensive loss of property; and they have found themselves in acute states of uncertainty about their future.

By the time they reach us, consumers are often stressed and fatigued, having typically already been through the claims process and internal dispute resolution (or IDR) processes with their insurer. 

At AFCA we saw a 50 per cent rise in complaints against general insurers in the 2022-23 financial year. That’s almost 30,000 complaints – the highest number we have seen for general insurance in the history of external dispute resolution (or EDR) at AFCA and our predecessors.

This financial year to date we have seen further increases in general insurance complaints by about 10 per cent.

The high volumes of complaints we saw coming through in 2023 concerned us deeply. It was a signal that things were not working for large numbers of customers as they interacted with their insurers. 

Also causing us concern was the sheer volume of complaints that were not about catastrophes or significant weather events, but about ‘business as usual’ insurance matters. This raised several issues around insurers’ ability to efficiently and fairly deal with claims when major events occur. 

People take out insurance for peace of mind, to protect their homes, cars and families. The value of an insurance policy is in the promise that allows consumers to feel confident and secure they will be looked after if something goes wrong. 

Consumers then expect their insurer to be there when something actually does go wrong, and to be treated fairly and with dignity and respect when that happens. 

At AFCA, we saw two key issues driving the increase in complaints coming to us: the two Ds – delays and denials, which I will now address.

Delays

First, the delays. These included complaints about delays after a claim had been lodged but before the insurer had made a decision, as well as complaints about delays after a claim had been accepted. 

Resourcing

We saw many complaints that should have been resolved in-house but which came to us because the insurer’s dispute resolution teams were just too busy.

AFCA has had to grow 41 per cent in size since the beginning of 2022, to lift our capacity to manage the increased volume of complaints before us.

This in itself is an indication that the insurers’ claims and IDR systems are not working, and that there is under-investment in these areas.

Such large numbers of consumers should not have to come to AFCA to have their complaints resolved.  

We believe insurers need to increase resourcing of their claims handling and dispute resolution teams. In our view, staff shortages in claims handling and internal dispute resolution led to a large number of escalated complaints.

We should not underestimate the impact on consumers – especially the victims of natural disasters – of having to pursue complaints, sometimes revisiting traumatic experiences in the process, because they are not being heard by their insurer.

Having a workforce that can manage ‘business as usual’ claims as well as ‘significant event’ disasters will be increasingly important – with the reality being that these sorts of events are becoming more common. Being able to juggle both must be the way we all work.

Communication

Equally important as appropriate resourcing is a commitment to better communication. We saw too much evidence that communication from insurers was poor. Consumers often had no way of receiving updates, and didn’t know what was going on. This generated much frustration, and ultimately mis-trust, among policyholders.  

Often the problem wasn’t even the delay itself – it was the void in information, in addition to the missing of promised dates. Again, we think this is, and should be, fixable.

Our data shows there is clearly an opportunity for technology to play a greater role in providing tailored communication to policyholders. We saw in many insurers a reliance on relatively manual processes that failed as soon as claim numbers rose and resources came under pressure. 

Thinking about the future, there should be greater investment by insurers in emerging technology that can supplement manual interventions to keep policyholders informed about what is going on.

Complaints about delays and poor communication are the low-hanging fruit that insurers must address urgently.

Denial of claims

The second ‘D’ I want to address is the denial of claims.

Expert reports

In particular, we saw too many complaints where the insurer had relied on an expert report in denying a claim but the report was of poor quality or lacked sufficient information.

For example, claims were denied due to ‘wear and tear’ exclusions where the evidence in the expert report was insufficient to show a causal link.

There were cases where hydrology reports were used to deny claims but without appropriate due diligence being undertaken. For example,  the report did not consider or address photographic evidence provided by the consumer or eyewitness evidence about the timing of initial inundation. 

It looked to us that, in denying a claim under an exclusion, insurers were often shifting the onus of proof onto consumers, rather than it being the other way around. We expect insurers to be able to rigorously support any decision to deny a claim. 

This was reinforced in a 2023 review by the General Insurance Code Governance Committee, which found that, in the home building claims they sampled, a shocking 50 per cent of claim denials were overturned in IDR.

Further, we saw claims denied because claims officers relied on a recommendation within an expert report to deny the claim. We do not consider the role of the expert to make decisions or recommendations about the interpretation and application of a policy provision. 

In addition, we did not see insurer’s staff reviewing and interrogating the quality of the reports to ensure it was appropriate to deny the claim.

We think a lot of work is needed to raise standards and the quality of expert reports, and to clarify what the role of the expert is versus the role of the insurer. 

Policy wording

We also regularly see confusion by policyholders about what their policy does and does not cover.

Although some work has been done, there is still a huge opportunity to improve the readability of policy terms, and to more closely align definitions and language across the sector.

Conclusion

Based on the evidence this committee has heard, and the ongoing volume of complaints AFCA is seeing, we can only observe that a significant shift is needed for insurers to meet community expectations.

We want insurers to look at the complaints their customers are making, and to seek to understand what is really driving these disputes. 

We believe they should ask themselves hard questions about whether, or how, their products, sales practices and claims handling practices need to change.

Although some work has been done, there is still a huge opportunity to improve.

At AFCA, we want industry to take the steps necessary to ensure they continue to deliver on the promise to their customers. 

One year on from now, we want to be able to report: a decline in complaint numbers and improvement by all insurers in their responsiveness to the complaints that do reach AFCA.