1 Inquiry into the operation of the insurance industry during Disaster Events September 2011 Submission on behalf of Legal Aid NSW to House of Representatives Standing Committee on Social Policy & Legal Affairs Background The Legal Aid Commission of New South Wales (Legal Aid NSW) is an independent statutory body, established under the Legal Aid Commission Act 1979 (NSW). It provides legal services, including advice, minor assistance and representation in Federal and State courts and tribunals, to socially and economically disadvantaged people. Legal Aid NSW experience in consumer law In the financial year of 2010-2011, Legal Aid NSW has provided client services to thousands of clients with civil law matters including information, advice and legal representation. Legal Aid NSW solicitors frequently advise clients and litigate a range of matters under consumer protection legislation, including many that are credit related. Legal Aid NSW has recognised expertise in the area of consumer credit law and regularly contributes to law reform at both a State and Federal level and particularly in relation to consumer law.
Transcript
1
Inquiry into the operation of the insurance industry
during Disaster Events
September 2011
Submission on behalf of
Legal Aid NSW to
House of Representatives
Standing Committee on Social Policy & Legal Affairs
Background
The Legal Aid Commission of New South Wales (Legal Aid NSW) is an
independent statutory body, established under the Legal Aid Commission
Act 1979 (NSW). It provides legal services, including advice, minor
assistance and representation in Federal and State courts and tribunals, to
socially and economically disadvantaged people.
Legal Aid NSW experience in consumer law
In the financial year of 2010-2011, Legal Aid NSW has provided client
services to thousands of clients with civil law matters including information,
advice and legal representation. Legal Aid NSW solicitors frequently
advise clients and litigate a range of matters under consumer protection
legislation, including many that are credit related. Legal Aid NSW has
recognised expertise in the area of consumer credit law and regularly
contributes to law reform at both a State and Federal level and particularly
in relation to consumer law.
2
1 See Appendix B
Executive Summary
Legal Aid NSW welcomes the opportunity to respond to this Inquiry into the
operation of the insurance industry during disaster events.
We appreciate the challenge the insurance industry face when responding
to natural disaster events.
The Queensland floods are possibly the most significant and challenging
disaster events in Australia's recent history. Our response has been to
assist our colleagues at Queensland Legal Aid, Caxton Legal Centre and
Insurance Law Service with the overwhelming number of insurance
disputes that have arisen through rejected insurance claims. We have
joined these organisations to establish the Combined Insurance Law
Service (CILS).
We also embarked on a sector-wide consumer Survey1 (the Survey) of 214
consumers in order to capture common themes and issues in relation to
disaster events that took place in 2010 and 2011.
The results obtained from the Survey have indentified the following issues:
A concerning number of refused claims and withdrawn claims
Delays in payment of claims and refusal of claims
Delays as a result of multi-tiered IDR processes
Failures to properly advise consumers of their right to make a claim
Failures to put in writing a refusal of claim
Failures to properly advise as to status of existing claims
Failures to properly advise consumers of their right to IDR and EDR
processes
The Survey results and our casework experience also point to a
concerning lack of transparency across the insurance sector on claims
handling processes. On the basis of evidence arising from the Survey and
our casework experience, there is a need for a comprehensive
3
investigation of the possible widespread practice of:
Insurers advising clients on the phone that they cannot make a
claim because they are not covered
Conduct that results in high rates of withdrawn or "cancelled"
claims
High rejection rates of claims arising from the Queensland floods
The issues covered in this Submission are not new. They have been
raised in previous submissions to reviews and inquiries that have taken
place over the years in relation to general insurance.
Legal Aid NSW has for some time expressed concern that:
There are significant barriers for consumers in enforcing and
protecting their rights in general insurance - consumers face
barriers accessing IDR & EDR or are often not aware that they
have a right to make a lodge a dispute
Multi-tiered claims handling processes need to be simplified, sped
up and made more transparent - consumers often get lost in the
process of IDR
There is a need for improved regulation and monitoring of systemic
issues in general insurance – there is little public accountability for
the loss of basic rights by many consumers
Insurance can have a very direct and substantial impact on the lives of
consumers, including their ability to get back on their feet after a disaster
event. A majority of respondents to the Survey were left without a home (or
lock up home) as a result of the floods. This is still the case nearly 10
months after the event. The experience of consumers that were surveyed
also points to a lack of understanding shown by insurers at a time of great
crisis.
4
Summary of Recommendations
Our recommendations can be summarised are as follows:
1. ASIC should investigate the claims handlings processes of insurers
during 2010/11 disaster events, with particular focus on rejection
and withdrawn claims rates Queensland floods, and provide
ongoing monitoring of the insurance industry claims handling
processes during disaster events.
2. There needs to be up-to-date public reporting during disaster
events and industry-wide public annual reporting monitored by
ASIC, including reporting on refused and withdrawn insurance
claims, IDR & EDR complaints as well as monitoring of timeframes.
3. That an Australian Standard for claims handling via Standards
Australia is developed in general insurance.
4. That improved claims handling timeframes and guidelines are
inserted into ASIC RG 165 & RG 139.
5. That insurers should not be able to opt-out of the General
Insurance Code of Practice for disaster events and improvements
are made to the Code on fairness, transparency and timeliness of
claims handling processes.
6. That an independent review and investigation is conducted of the
General Insurance Code of Practice in respect to 2010/11 disaster
events including a review into systemic breaches of the Code.
7. ASIC investigate potential breaches of the ASIC Act or Insurance
Contracts Act by insurers in respect of 2010/11 disaster events
including an investigation of claims of misrepresentation.
8. That there is an independent review undertaken by FOS in relation
to its processes in response to disaster events including the impact
of these processes on disadvantaged consumers, especially in
relation to both credit and insurance issues.
5
2 Sydney & Melbourne, April/May 2011 3 Joint Consumer Submission to Treasury, 2011 4 ASIC Offices, Sydney, 2011 5 Joint consumer Submission to the Review of the Insurance Contracts Bill (2009) 6 Joint Consumer Submission to the Review of General Insurance Code of Practice, ILS, July 2009 7 Submission to Senate Economics Legislation Committee, Trade Practices Amendment (Australian Consumer Law) Bill 2009, NLA, August 2009
9. That there is improved funding for the National Insurance Law
Service and funding for a specialist insurance centre in each state
and territory in Australia.
A complete summary of our Recommendations can be found at Annexure
E.
1. INTRODUCTION
Expertise in insurance consumer law
Legal Aid NSW has specific policy expertise and casework experience in
insurance law including:
Public consultations with Panel Inquiry into Natural Disaster
Insurance Review2
Responding (Jointly) to Reforming Flood Insurance - Clearing the
Waters 20113
Attending Parliamentary Secretary Bradbury's Roundtable on
Unfair terms & Insurance 20114
Responding to the Insurance Contracts Act Bill (2009)5
Responding to the 2009 General Insurance Code of Practice
Review6
Responding to call for submissions by Senate Economics
Legislation Committee hearing on Australian Consumer Law Bill
2009 including responding to requests to attend that hearing7
Responding to the consultation paper prepared by Commonwealth
Treasury An Australian Consumer Law: Fair Markets – Confident
6
8 Submission to Treasury re Australian Consumer Law, Legal Aid NSW, June 2009 9 Submission to Treasury on draft Australian Consumer Law Bill (2009), Legal Aid NSW, May 2009 10 Submission to Productivity Commission on Draft Report on Consumer Policy, Legal Aid Commission of NSW February 2008 11 Joint Consumer Submission to ACCC re ICA application for common definition of Inland Flood, August 2008 12 Remembering the Corrimal Floods - 10 years on' 10 page Special Report, Illawarra Mercury, 14 August 2008
Consumers in 20098
Responding to consultation on the draft Trade Practices
Amendment (Australian Consumer Law) Bill (2009)9
Responding to the Draft Report of the Productivity Commission into
Australia's Consumer Policy Framework in 200810
Responding to the Insurance Council of Australia’s application to
the ACCC for authorisation of a common definition of ‘inland flood’
in 200811
Legal Aid NSW Natural disaster response – the last 5 years
Legal Aid NSW also has a long history of responding to the needs of
communities who are the victims of natural disasters, including the severe
storms in Wollongong in 1998.12 Details of Legal Aid NSW responses to
disaster events in the last 5 years can be found at Appendix A.
Highlights of Legal Aid NSW's disaster relief work includes:
The CILS is a partnership of Legal Aid NSW, Legal Aid Queensland,
Caxton Legal Centre and the Insurance Law Service, which was formed to
deal with the overwhelming demand for assistance by consumers in
dealing with their insurers as a result of the Queensland floods.
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14 See Appendix B - 15 See Appendix C & D
A Survey was also conducted during August and September 2011 14 to
gather information about the experience of consumers following disaster
events that took place in 2011 and 2012.
The results from the Survey together with the casework experience of the
Combined Insurance Law Service (CILS)15 are two recent ways in which
key issues and concerns have been identified.
Key findings
The key findings from the Survey and casework experience of CILS are:
There are significant delays in claims handling and the process is
confusing and unclear for consumers
There is a lack of transparency and public accountability in key
aspects of claims handling including:
o Rejected claims
o Withdrawn claims
o Reviewed claims
o Multi-tiered IDR processes
o Right to EDR
Many consumers were not been properly advised of their rights in
relation to claims following disaster events
There is a poor understanding by insurers of consumer needs or
consumer rights particularly following disaster events
Ineffective communication of key conditions and exclusions
Misrepresentation by insurers – often at the point of telephone sale
A low quality or standard of services provided to consumers
2. PART A
The claims processing arrangements
An integral aspect of insurance as a financial product is the pay out on
insurance claims. Disaster events cause major (possibly the most severe)
financial stress on consumers.
9
16 See for instance Legal Aid NSEW response to IOS review 2005; Joint Consumer Submission to the Review of General Insurance Code of Practice, ILS, July 2009; Submission to Senate Economics Legislation Committee, Trade Practices Amendment (Australian Consumer Law) Bill 2009, NLA, August 2009 17 See 'ASIC finds high level of withdrawn motor vehicle insurance claims', Consumers Federation of Australia - www.consumersfederation.org.au/category/finance/insurance 18 See 'Myths about General Insurance On average, industry reports that insurers pay out on 98% of insurance claims (ICA website –' insurancecouncil.com.au). 19 Courier Mail, 8 April 2011. 20 ICA website – Historical & current disaster statistics insurancecouncil.com.au
A key challenge in the response to disaster events by the insurance
industry involves balancing on the one hand, the information it provides on
claims paid out and not paid out; and on the other hand, with the
timeliness of rejection of claims and the outcomes of disputes.
There is a lack of available data in relation to:
Rejection rates for claims - including the low number of rejected
claims that are referred to IDR and EDR16
Withdrawn or cancelled rates for insurance disputes – where the
consumer basically gives up on their claim17
Given this lack of available data, when natural disasters strike, it is difficult
if not impossible to properly gauge the effectiveness of insurers in
responding to such events. This was one of the drivers for undertaking the
Survey, provides a measure of empirical analysis of the issues from the
perspective of consumers.
Rejection rates – Queensland floods
Historically, the insurance industry has based its reputation on its ability to
keep relatively low rejection rate of claims for most insurance products.18
However, the rejection rates of claims arising from the Queensland floods
are much higher than average. The rejection rate for the Queensland
floods has run at approximately seven times the industry average –
running at 15% (industry average 2%).19 With 57,530 claims made in
respect of the Queensland floods,20 and without more accurate data, we
estimate about 8595 claims have been rejected.
What concerns us greatly about the rejection rates for the Queensland
10
21 ASIC Report 245 Review of General Insurance & IDR Procedures 2011 22 See ASIC Report 245 Review of General Insurance & IDR Procedures 2011, - ASIC noted that in 2009 there were 1,176,621 Motor vehicle insurance claims made in 2009, with a 'low' denial rate of 0.28% but with a 'higher' withdrawn or cancelled rate of 7% of all claims. See p 17
floods is the lack of transparency around the determination of these claims.
It is important that consumers and the regulator (ASIC) have a clear
understanding of which insurers are not paying out on insurance claims
and the reasons for the differences in approach by respective insurers.
Access to up-to-date information on the number and rate of rejected claims
in relation to disaster events will also greatly assist consumer advocates
and EDR schemes to meet predicted demand. Up-to-date public reporting
on rejection rates on insurance claims is an essential feature of any
disaster response by industry.
Withdrawn / cancelled claims
There is a similar lack of available data about the number of withdrawn or
cancelled claims in disaster events. For example, there is little or no data
on the number of withdrawn or cancelled claims in relation to the
Queensland floods.
Based on trends of withdrawal rates that have been recently published by
ASIC21 in its investigation into general insurance motor vehicle claims,
there is strong evidence to suggest that a significant number of people are
missing out on pursuing their rights in relation to their insurance claims.
In 2009, ASIC reported that 7% of all motor vehicle claims, (some 82,36322
claims), were withdrawn or cancelled in that year. This represents a
withdrawn (or cancelled) rate that is 25 times the rejection rate for motor
vehicle claims. If similar withdrawal rate of claims were applied to the
Queensland floods, we might expect that possibly upwards of 4027
consumers withdrew or cancelled their insurance claims.
11
23 See for instance Joint Consumer position statement 1 February 2011, ' A Fair Go in Insurance'. See also Insurance Law Service submission to 2009 Insurance Code of Practice review; Joint Consumer submissions in response to FOS Terms of Reference 2009; Joint Consumer Submissions to Review of ASIC RG 165/139 2009 24 Response to Q 36A, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 25 Response to Q 30, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 26 Response to Q 44, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 27 This fundamental right no doubt exists arising from the duty of utmost good faith, which exists in every insurance contract between an insurer and insured: s 13 Insurance Contracts Act.
a. a. Information given by insurers about the right to make a claim, the
progress of the claim and the right to external dispute resolution.
Consumer groups have expressed ongoing concern, for some time now, in
relation to the accuracy and usefulness of information provided by insurers
to consumers about their right to make a claim.23
Amongst the key concerns are failures to:
inform customers of their right to make an insurance claim
inform customers of their right to review of a rejected claim
provide a refusal of a claim in writing
advise their customers of the progress of their claim
advise their customers of their right to EDR
These concerns are validated by the Survey, which shows that a relatively
high percentage of consumers have never being advised, at any stage, by
their insurer of their:
right to make a claim (20% of clients not advised)24,
on the progress of the claim (78% of clients never informed)25
and
right to go to EDR (48% of clients not advised)26.
Consumers advised they could not make a claim
The most fundamental right that consumers have in relation to insurance is
to be advised of the right to make a claim in relation to their insurance
policy.27
The survey results report that 43 out of 214 survey responses were told by
their insurer they could not make a claim because they were not covered
12
28 Response to Q 36A, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 29 Response to Q 30, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 30 Response to Q 31, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
for that disaster event.28
There is a need to investigate the practice of advising consumers by phone
of their right to make a claim and the impact this has on consumers
enforcing their rights under an insurance policy.
This practice is problematic because consumers tend not to know of their
rights to have their claim recorded and formally refused or their rights to
review those decisions. These cases are also not recorded as refused
claims and there is no available data on withdrawn or cancelled claims.
Consumers not advised of the progress of their claims
Insurers have obligations to advise their insured of the ongoing progress of
their claim. This duty arises out of the overarching duty of utmost good
faith, which applies to the claims handling phase of insurance contracts.
The duty is reflected in the General Insurance Code of Practice:
Clause 3 – Code of Practice
We will advise of the progress of your insurance claim, at least
every 20 business days
The Survey results show that there was widespread disregard of Clause 3
of the General Insurance Code of Practice during disaster events. 78% of
consumers surveyed said they were never advised about their progress of
their claim.29
The burden of being informed as to the progress of their claim fell heavily
on consumers. Our survey results record over a third of consumers
needed to call their insurer more than ten times to follow up on the
progress of their claim.30 This places a very significant financial and
emotional burden on the consumer, especially at a time of crisis, and who
were already suffering from the trauma related to the event itself.
13
31 All responses are to Comment Responses at Q 29 (except where otherwise noted), CILS Survey on Insurer Responses to Natural Disaster Events, 2011 32 Comment Response at Q 32, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 33 ASIC RG 165 Clause 100 (b). The obligation to an IDR response is triggered by expression of dissatisfaction with a complaint which implicitly or explicitly requires a response: RG 165.90
Some of the comments made in the Survey in relation to this issue are31:
Couldn't get through on landlines to lodge claim, mobile bills
huge. No claim number given. Couldn't get any concrete
answer. I was put off - it's just arrived with me, it's in with
the assessors etc. Fobbed off with these sorts of
comments. Transferred through to the wrong department
every time. I was told to ring between 2am and 3am in the
morning, so there'd be less callers, and still couldn't get
through.
I was using an expensive mobile phone because landlines
were down. We are in a semi-rural area and had to go off
our property to get mobile coverage. I drove to Brisbane at
times to try to get information because [the insurer] just
weren't communicating by phone.32
Consumers not advised of the right to IDR & EDR
Insurers have an obligation under ASIC RG 165 to provide consumers of
their final response within 45 days of the date of an unresolved
complaint.33 In their final response, there is an obligation on the insurer to
include the details of Financial Ombudsman Service (FOS) as the
approved EDR scheme for general insurance.
The survey results identify widespread disregard of the 45 day rule as well
as disregard of the requirement to advise consumers of their right to be
informed of EDR.
The majority of consumers surveyed reported that insurers did not provide
14
34 Some 66% of consumers responded as such - Response to Q 43, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 35 Response to Q 44, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 36 Response to Q 15C (aa), CILS Survey on Insurer Responses to Natural Disaster Events, 2011 37 Financial Ombudsman Service submission to House of Representatives Inquiry into Insurer Response to Natural Disaster Events.p.19 38 National Pro Bono Resource Centre, 'Report Calls for Increased Role in Community Sector in Disaster Planning, Media Release', 23 August 2011 39 Response to Q 42, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
useful and accurate information about their right to EDR.34 Almost half of
surveyed consumers reported that they were never advised by their insurer
about their right to EDR at the time they were given a final response.35
13 out of 241 respondents said that they were never provided with a
refusal of their claim in writing.36
Impact of poor claims handling processes
The failure of insurers to advise consumers of their EDR rights is reflected
in the relatively low numbers of consumers, who lodged a complaint at
FOS following recent disaster events. In relation to the Queensland floods
for example, of the 8595 claims rejected, only 479 disputes were lodged
with the Financial Ombudsman Service.37 This means only 1 in 20 refusals
were referred to EDR.
The National Pro Bono Resource Centre38 recently reported that:
The Insurance Council of Australia figures show between 7500-
10,000 people had their insurance claims rejected in the past
twelve months, but less than 1000 of these have sought a review
by the Financial Ombudsman Service. There are probably a lot
more people out there who just don’t know they have a right of
review or how to pursue it.
The Survey found that 76% of respondents believed they were not given
accurate and useful information by their insurer about the claims process.39
These failings might be partly due to the fact that existing obligations under
15
40 As outlined in Footnote 20 above, the right to be advised on EDR only arises out of a final response to an IDR complaint. The insurer's only current obligation under ASIC RG 165 on a refusal is to advise as to the right to IDR. 41 See Insurance Law Service submission to 2009 Insurance Code of Practice review at pp39-45
RG 165 (to advise consumers of their right to EDR) are not triggered on
the refusal of an insurance claim - but only at the point of final IDR
response.40
Our casework experience from these disaster events and insurance work
generally is that the existing rules are not adequately suited to multi-tiered
IDR processes.41 Consumers need to be advised clearly and at a much
earlier stage of their right to EDR.
Recommendation
ASIC Investigation – claims handling response
An investigation is warranted by ASIC in relation to the 2010/11 disaster
events, with particular focus on the Queensland flood response to
determine:
The rejection rate of claims made as a result of the Queensland
floods and whether the rate of rejections point to any systemic
failure of industry
The level and extent of the practice of advising consumers that they
could not lodge a claim in respect of the insured events
The level and extent of the practice of consumers having their
claims withdrawn and cancelled including:
o Reasons for this occurrence
o Whether consumers have been properly informed of their
rights to lodge a claim, to IDR & EDR before they cancelled
or withdrew their claims.
The level and extent of the practice of insurers not advising their
customers of their right to have their claim reviewed.
16
Recommendation
Improved claims handling timeframes and guidelines in ASIC
RG 165
That ASIC RG 165 be amended to include an obligation on insurers to
advise their customers of:
1. their right to make a claim at the time they first call their insurer in
respect of the insured event
2. their right to EDR – by providing consumers details of EDR in
writing at time of first refusal of their claim attaching the
That ASIC provide ongoing monitoring on the insurance industry claims
handling processes during disaster events.
That there is industry-wide public annual reporting, monitored by ASIC,
on:
a. Number of refused claims – including refusal rate (Industry
wide; per insurer)
b. Number of IDR claims – including refusal rate (Industry
wide; per insurer)
c. Number of complaints withdrawn or cancelled – including
withdrawal rate (Industry wide; per insurer)
d. EDR complaints – during same period (Industry wide; per
insurer)
e. Timeframes – processing of claims, refused claims, IDR
complaints, EDR cases (Industry wide; per insurer)
Recommendation
Independent Code of Practice review
That an independent review and investigation of the General Insurance
Code of Practice be conducted in respect to 2010/11 disaster events
including a review into any systemic breaches of the Code.
17
42 Responses at Q 37, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
Recommendation
ASIC Investigation - systemic issues
That ASIC investigate potential breaches of the ASIC Act or Insurance
Contracts Act by insurers in respect of 2010/11 disaster events including
an investigation of withdrawn or cancelled claims.
b. Timeframes - The time taken to process claims by the insurance
industry and whether these timeframes were reasonable (by event
and region).
The time it takes for an insurer to process claims is critical for consumers,
especially in the context of disaster events. As insurance is a financial
obligation to indemnify for loss, performance of the key obligation occurs at
the time of indemnity - not at the time a consumer lodges a claim for
indemnity.
In a natural disaster event, the issue of the time it takes to pay the claim
becomes even more significant given the potential impact on people’s
lives.
Survey results record that for most people, the financial loss alone
associated with the disaster events that occurred in 2010/11 is between
$100,000 to $500,000 per household. 42 When a family has lost everything
they own in a disaster event, the time that it can take for insurers to
process claims, including unresolved claims, becomes a matter of financial
survival for many families. Mortgages and ordinarily costs of living still
continue despite the fact that consumers may not have a house to live in.
Temporary accommodation also needs to be organised, arranged and paid
for when homes are completed destroyed. We are aware of numerous
cases where we needed to point out to insurers that temporary
accommodation costs need to be provided early and up front, just so
customers have a roof over their heads. Where we have raised these
18
43 Insurance Law Service submission to 2009 Insurance Code of Practice review, pp 36 -45 44 Insurance Law Service submission to 2009 Insurance Code of Practice review, pp 36 -45 45 Clause 3.1 General Insurance Code of Practice 46 Clause 3.1 & 3.2 General Insurance Code of Practice 47 Clause 3.1 & 3.2 General Insurance Code of Practice 48 Clause 4.3 General Insurance Code of Practice
concerns, insurers have been willing to make such payments. However we
are concerned about whether the same response was given to similar
requests made by people who were not legally represented. It is vital that
such interim payments are prioritised as a matter of course for disaster
events.
The time it takes for insurers to resolve disputed insurance claims has
been a matter of real concern for some considerable time.43
Existing regimes governing the reasonable time to resolve a claim,
including unresolved claims, is insufficient and piecemeal. It relies heavily
on the Industry Code of Practice in General Insurance that has been
criticised in the past for failing to address the unfairness in delay on
disputed claims.44 There is little if any public reporting and monitoring by
industry, the regulator or FOS as to the time to resolve disputed claims.
As we have noted above, the rules governing time to resolve an IDR
dispute do not in practice put a time limit on the time frame allowed to
resolve a claim. Provisions in the General Insurance Code of Practice
technically require a decision on a claim to be made in 10 business days.45
However, the Code creates a host of exemptions to the rule including:
where a decision can't be made in 10 business days because there
is not sufficient information to make a decision - then there is no
cap on the time to resolve the claim, except a promise to keep the
consumer informed every 20 business days46
where an assessor or investigator is appointed –then the obligation
is simply to keep the consumer informed every 20 business days47
where an insurer feels it can't meet these obligations because it is
a disaster event48
19
49 Response to Comments at Q 28, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
From the Survey results, 137 consumers (64%) described the insurer's
response in settling the claim as very slow.49
Furthermore, of the 624 cases taken on by CILS from the Queensland
floods, dispute resolution processes are still on foot in 536 of those cases
(nearly 10 months after the event).
Recommendation
Time limits
Amend ASIC RG 165 to:
a. Provide a cap on the time to process an unresolved claim to
4 months
b. Provide for monitoring and public reporting on the time
insurers take to process claims including unresolved claims
Amend ASIC RG 139 to:
c. Clarify the obligation of EDR to assume jurisdiction of
insurance disputes that remain unresolved beyond the 4
month cap.
Amend the Code of Practice to:
d. Reflect the 4 month cap in RG 165
e. Ensure that during disaster events insurers prioritise
aspects of unresolved claims – including alternative
accommodation costs – to ensure financial hardship is kept
to a minimum.
f. Remove the provision in clause 4.3 of General Insurance
Code of Practice which, amongst other things, permits
insurers the opportunity to opt-out of complying with time
limits in clause 3.1 & 3.2 of the Code
20
50 Response to Q 35, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
Recommendation
Claims handling Australian Standard
Development of an Australian Standard for claims handling in general
insurance.
c. External parties - The engagement of third party experts and
external consultants by the industry, including hydrologists and law
firms, and the impact of these external parties on claims processing.
The reality of insurance in Australia today is that it often involves the
engagement by the insurer of third party experts and third party external
consultants including claims assessors to assess the quantum of the claim
and hydrologists to consider flood claims. The Queensland floods also
saw, for the first time, widespread engagement of lawyers by one particular
insurer, even though all the disputes were being dealt with in IDR & EDR
schemes.
We saw in the 2010/11 disaster events insurers engage a vast array of
third party consultants and experts engaged in consumer claims. The
Survey results identify the following third parties were engaged in respect
of disaster event insurance claims:50:
- Assessors
- Hydrologist
- Lawyers
- Engineers
- Mould specialists
- Building consultants
- Building estimator
- Building services authority,
- Geologists
- Smash repairs
- restoration specialists
- Biologists
- Bleaching treatment
21
51 We estimate that approximately two thirds of the 536 unresolved cases in the CILS network is as a result of disputes with insurer over flood v's storm, including hydrology. 52 Some 29 of our Surveyed consumers advised that a decision was made by the insurer before they sent out the hydrologist. See Response to Q 15C(ac), CILS Survey on Insurer Responses to Natural Disaster Events, 2011
- Electricians
- Roof tilers
- Home decorators
- Flooring specialists
- Carpet people
- Fencing people
- Plumbers
Further details of these third party consultants and experts are outlined in
Appendix B, see response to Q35 of the survey.
We accept that given the nature of insurance, third party consultants can
be a necessary part of the claims handling process.
However, the Survey results and our casework experience reveal that:
The use of consultants, particularly hydrologists, adds considerable
delay to the claims handling processes51
Consultants are sometimes used by insurers to mask poor
decision-making, particularly in regard the flood refusals, where
hydrologists were engaged to produce a report after the claim had
already been denied52
The outsourcing of claims handling processes to law firms external
to the organisation creates concerns for consumers, consumer
organisations and regulators given the dislocation of third party
lawyers to the realities of claims handling compliance and
regulation
Third party experts, particularly in the use of hydrologists &
geotechnical reports, can provide information that is of such a
technical nature that no lay person can adequately absorb the
22
information effectively – and therefore understand their rights and
obligations
Consumers and community sector lawyers do not have the funds to
engage third party experts, including use of hydrologists – hence
the need for such services to be available at EDR
Recommendation
Third party consultants
We recommend that a panel of hydrologists be available to consumers at
FOS free of charge to consumers
d. Internal Dispute Resolution - Whether industry IDR processes were
effective and undertaken in a timely manner.
The effectiveness and fairness of claims handling processes is, in our
experience, largely shaped by the effectiveness of IDR processes within
the same organisation. It has been our casework experience that:
Companies that commit to effective and well-managed IDR have
better claims handling processes
Companies that have problems with delay and inconsistent
decision-making often have weak and directionless IDR processes
Good IDR processes provide a multitude of benefits for companies, which
flow on to the consumer including:
Oversight and review of claims handling procedures and decision-
making
Commitment to continual improvement within an organisation
Challenging negative cultures which can develop within an
organisation in response to the many challenges of customer
service delivery
For these reasons, we support the ongoing commitment of industry to IDR
23
53 Comment Response at Q 32, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 54 Comment Response at Q 32, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
processes. We have observed however, that since the Global Financial
Crisis, less commitment is being made to proper resourcing of IDR
processes.
There is a significant risk that if there is no improvement to dispute
resolution processes, the ultimate burden falls onto the consumer and the
organisations that assist them.
Poor IDR – Effect on Consumers & Community sector
Poor IDR processes have been a feature of concerns raised about the
response of insurers to the Queensland floods including considerable
concerns about delays in IDR. Whilst insurers have generally allocated
more resources to their claims handling sections in response to disaster
events, it appears that they have not done the same for their IDR
processes, especially where there has been widespread refusals of claims.
Significant number of claims run through IDR by CILS has seen that
despite the fact that a person may still be without a home, a kitchen or a
bathroom, insurers are applying a business as usual approach to many of
these rejected claims.
Some comments from Surveyed clients include
Client was very disappointed that he was trying to be
fatigued through the process by given lots of different
people to deal with all the time.53
Had to tell my story over and over to different people. I got
one guy who was pretty decent and I rang back and asked
for him again. The rep who took my call told me I had no
right to ask for specific people.54
The ongoing cost of inadequate claims handling and IDR processes has
impacted greatly on the limited resources of public legal sector. It has
24
55 See Appendix C 56 On average, insurers pay out on 98% of insurance claims (ICA website – Myths about General Insurance ica.com.au). In relation to the flood disaster, insurers paid out on approximately 85% of claims: Courier Mail, 8 April 2011. Given the 57,530 claims in respect of Qld floods, 8595 claims have been rejected. 57 This estimate is based on withdrawn rates (7%) at same level as recent ASIC report on motor vehicle claims (ASIC Report 245 Review of General Insurance & IDR Procedures 2011), applied to
the 57,530 claim in Queensland flood..
created more work and it has taken much longer than necessary to resolve
claims. Our casework experience and the Survey results clearly illustrate
a system of claims handling that is complex, time consuming and
ultimately very frustrating for consumers.
Since establishing CILS in early 2011 in response to the Queensland
floods, 624 insurance disputes are being progressed on behalf of affected
consumers.55 As noted above, nearly 10 months later, only 12% of
disputes have been resolved.
Of perhaps even greater concern is for the remaining unrepresented
consumers. Approximately 8595 claims have been rejected.56 We expect
that based on previous withdrawn or cancellation rates generally, a further
4027 consumer claims are likely to have been withdrawn.57
e. Code of Practice - The effectiveness of the insurance industry's
Code of Practice
As outlined above, the General Insurance Code of Practice has failed to
provide consumers with proper safeguards and protections in respect to
disaster events. Delays in claims handling and failing to advise consumers
of the progress of their claim, as outlined in above, are just a few examples
of Code obligations that have not been met.
The Code also has significant gaps in protection as there are:
no provisions providing a cap on time to make a claim,
no provisions on the obligation to advise a consumer of their right
to IDR or EDR
no provision to advise consumers of their right to make a claim
The Code fundamentally fails consumers in times of natural disasters
25
58 Financial Ombudsman Service submission to House of Representatives Inquiry into Insurer Response to Natural Disaster Events.p.10 59 Op cit
because clause 4.3 of the Code provides an opportunity for insurers to opt-
out of the existing obligations in the Code. The only mandatory provision
that does appear to apply in relation to disaster events is clause 4.5 of the
Code, which allows consumers an opportunity to have an agreed
settlement in a disaster event reviewed within 6 months of the claim.
When FOS investigated potential breaches of clause 4.5 by insurers in
relation to disaster events, it found 3549 affected consumers had not been
advised of their right to a review of the refused claim under clause 4.5 of
the Code of Practice, in response to disaster events.58 When queried by
FOS as the lack of compliance with their obligation:
3 insurers advised that the obligation was "overlooked" due to the
large volumes of claims in catastrophe and a desire to process
claims quickly for consumers
2 insurers "misunderstood" the operation of clause 4.559
Other concerns in relation to the Code include:
The Code does not apply to all general insurers in the marketplace
There is little or no public reporting on Code compliance, and
investigation of breaches
The failure of the Code to meet consumer expectations in disaster events
was reflected in feedback from the Survey such as:
The only time I heard about it was when they refused it.
They've been really callous. We were on tenterhooks all
that time, getting no information and then they just drop the
bombshell. There was no care taken in how they handled
26
60 Comment Response at Q 32, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 61 Comment Response at Q 32, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 62 Consumer submissions in response to FOS Terms of Reference 2009; Joint Consumer Submissions to Review of ASIC RG 165/139 2009
us.60
It took them three or four days each time to call back, if they
ever did. I only managed to communicate hem every week.
I think their service was disgraceful.61
Recommendation
Code of Practice
1. Remove the ability of insurers opt-out of Code by excising clause
4.3 of General Insurance Code of Practice
2. Improve public reporting and monitoring on Code compliance,
investigation of breaches, particularly in relation to disaster events
3. Conduct an independent review of the Insurance Code of Practice
to investigate Code breaches by insurers during 2010/11 disaster
events
3. PART B
The conduct of external dispute resolution processes for claims
arising from the 2010/2011 extreme weather events, including:
a. The effectiveness of dispute resolution within the Financial
Ombudsman Service.
Organisations that assist consumers such as Legal Aid NSW have said for
some time that EDR should be the forum of first choice in the resolution of
consumer disputes.62 Developing a fair and effective forum to resolve
insurance disputes is a crucial part of the civil justice system for
consumers in Australia today. EDR is important in insurance disputes
because, at one level, its presence rectifies the inherent power imbalance
that exists between unrepresented consumers and their insurers.
27
Some of the key benefits of EDR in disaster events including for insurance
disputes include:
Expertise of decision-makers who develop expertise in a
specialised and complex area of the law
Experience in dealing with third party involvement, including
experience in assessing the veracity of hydrology reports and
assessor reports
Willingness to attend site visits on particular types of disputes
including flood disputes
Use of Panels in decision-making, which receive the benefit of a
consumer representative and an industry representative
perspective and understanding on key provisions of Insurance
Contracts Act
Broader decision-making powers beyond the strict letter of the law
to include:
o Good industry practice
o Code of Practice
o Reasonable in all the circumstances
Free, no costs jurisdiction for consumers
Consumers retain their legal rights to sue in court
Systemic oversight and review of IDR and claims handling
practices
Systemic oversight, review and investigation of Code breaches
Despite the many benefits to consumers, it is our casework experience
that there are a number of key challenges that consumers face when
accessing EDR. These include:
Processes which assume that unless a consumer who has lodged
28
63 FOS currently maintains a rule that despite the fact a consumer has registered a complaint with FOS, unless a consumer contacts FOS again to reignite the claim, the file will be closed without further contacting the client. FOS relies on the information in a letter it sends out to consumers as a basis for this rule, which includes the fact that it will reopen a file if the consumer contacts the scheme again. 64 The FOS substantiation notice letter, which sits across most areas of FOS, requires consumers to explain why they are not satisfied with the response of the insurer as a basis for resolving the dispute. Unrepresented consumers, particularly disadvantaged consumers, may find it hard to adequately respond to such notices. Given there were 544 unrepresented consumers from three recent natural disasters, this may be a significant issue. 65 FOS processes allow various different 'touches' on a file by different persons within the scheme. A common concern with caseworkers and consumers is that individual caseworkers often have a very different view of the dispute and what information is necessary to resolve it. For disadvantaged consumers, who are unrepresented, this can present a significant communication challenge that may work against their interest.
a complaint with FOS makes further contact, that the dispute has
resolved63
Processes which require consumers to substantiate a basis for
FOS to maintain involvement in the dispute64
Concerns that disadvantaged consumers are not always assisted
in an effective and fair manner to take into account their
disadvantage including:
o Processes to ensure that interpreters are used throughout
the dispute resolution process
o Processes to ensure unrepresented consumers, who are
socially or economically disadvantaged are appropriately
referred to community sector services including:
Financial counsellors
Community sector lawyers including Legal Aid
offices or Community Legal Centre
o Processes to ensure that the particular related needs, for
instance, to a financial hardship variation with mortgagee
can be identified by the scheme on behalf of the consumer
Processes need to be put in place to ensure that consumers,
particularly disadvantaged consumers are treated consistently and
fairly through FOS65
Concerns that consumers interests cannot be fairly protected in
certain matters, including in 'flood versus storm' claims, unless and
until a hydrologist report is commissioned on behalf of the
consumer
Need for improved public reporting of Code breaches and systemic
29
issues reporting to ASIC by FOS
Recommendation
FOS
1. That FOS commission an independent review of its processes in
response to disaster events including the impact of these
processes on disadvantaged consumers, especially in relation to
both credit and insurance issues.
2. That FOS appoint a Consumer Advocate to ensure fairness and
consistency in processes and practices across the organisation,
particularly for disadvantaged customers including the development
of appropriate internal guidelines and training
3. A panel of hydrologists are available for consumers to meet insurer
evidence in appropriate circumstances
b. Barriers to participation in external dispute resolution for
consumers
There are significant barriers to participation in EDR by consumers in
disaster events. As outlined in Part A above, many consumers are
effectively excluded from properly accessing their rights in relation to
insurance claims because they have not been properly advised about:
Their right to make a claim
Their right to EDR – particularly where consumers feel they are
getting nowhere with their insurer
The impact of barriers to participating in EDR is the relatively low numbers
of consumers with rejected claims who access EDR. In relation to claims
30
66 We estimate these figures based on 57,530 claims in Queensland flood (Historical & current disaster statistics insurancecouncil.com.au) with rejection rate at 15% of all claims lodged (Courier Mail, 8 April 2011.ICA website) 67 This estimate is based on withdrawn rates (7%) at same level as recent ASIC report on motor vehicle claims (ASIC Report 245 Review of General Insurance & IDR Procedures 2011), applied to
the 57,530 claim in Queensland flood.. 68 Financial Ombudsman Service submission to House of Representatives Inquiry into Insurer Response to Natural Disaster Events.p.19 69 National Pro Bono Resource Centre, 'Report Calls for Increased Role in Community Sector in Disaster Planning, Media Release', 23 August 2011
lodged following the Queensland floods, we estimate possibly upwards of:
- 8595 rejected claims 66
- 4027 withdrawn or cancelled claims67
However out of a possible 12,622 rejected or cancelled claims, only 479
disputes have been lodged at FOS68
The barriers to accessing EDR are felt most keenly by the most
disadvantaged in our community. It is our casework experience that
socially and economically disadvantaged consumers are more likely to be
excluded from the legal system, because of their lack of ability to properly
advocate for their rights. Unlike in credit cases, where consumers own an
asset and financial service providers usually must take active steps to
assert legal rights, insurance disputes involve the less well-resourced party
to the dispute taking steps to ensure their legal rights are protected. The
imbalance of knowledge of rights and availability of resources lies at the
heart of the access to justice concerns for so many consumers in
insurance. We expect that many people involved in insurance disputes
simply give up on their rights because of this power imbalance.
The Law Council of Australia President Alexander Ward recently
commented that the legal profession was an essential part of the
emergency response process to any disaster given:
“People disadvantaged by disaster situations often don’t know
where to turn, particularly in a time of great personal stress." 69
31
70 Community forums or meetings represented approximately 25% of all referrals to community legal sector. See Response to Comments at Q 39A, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 71 Response to Q 39A, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
c. The impact of free legal advice on people's access to external
dispute resolution (including assistance provided by Legal Aid
services and community legal centres)
The community legal sector, including Legal Aid Commissions and
community legal centres play an integral part in responding to disaster
events.
Feedback from Surveyed clients suggested that information about the right
to free legal advice came almost exclusively (97%) came from the
community sector – and not industry or EDR.70 Only two consumers
reported that their insurer advised them of free legal advice and only 4
consumers at FOS were informed of their rights to free legal advice.71
It is our experience that coordinated public legal sector responses to
disaster events are a very effective in making legal advice and assistance
accessible to those consumers who need it.
Our experience is that a coordinated approach enables the sector to:
Reach the maximum number of people in need of legal help
Identify common legal and policy issues across the sector
Effectively dissemination of community legal education and
information
However resources in the community legal sector are limited and unless
they are properly resourced and funded to allow for this coordinated
approach, especially in the aftermath of disaster events, there will continue
to be many consumers who are not able to access legal assistance and to
protect their rights.
This is particularly so if the issues in relation to claims handling and IDR
processes identified above are not adequately redressed.
32
Our casework experience strongly suggests that where consumers have
access to free legal advice, they will be in a much better position to access
EDR.
Insurance is a highly specialised area of the law that involves
understanding of some complex provisions in the Insurance Contracts Act
as well as not well understood insurance practices, such as obtaining
hydrology.
Australia currently has only one national specialist insurance legal service,
the National Insurance Law Service (ILS). The challenge for ILS is that it
has very limited resources and cannot meet the demand for services within
the community. It therefore relies on Legal Aid Commissions and
community legal centres to meet the gap in services.
More resources are urgently needed to provide a specialist insurance
casework presence in each State or Territory in order to resource and
support legal advice and assistance services assisting people with
insurance claims, and to coordinate the public legal response following
disaster events.
Recommendation
Specialist insurance service funding
That there is improved funding for Insurance Law Service and funding for a
specialist insurance services in each state and territory
4. PART C
Any other matters impacting on insurance claims processing arising
from the 2010/2011 extreme weather events.
The Survey results and our casework experience identifies a series of
issues of concern in respect of insurer response to disaster events that
warrant further investigation. These include:
PDS issues
33
72 Response to Q 18, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 73 Response to Q 22, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 74 Response to Q 23, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
Misrepresentation
Service delivery concerns
Re insurance and finances
Ongoing impact of floods
PDS issues
.A number of important initiatives are underway which will be crucial in
developing fairer insurance contracts for consumers (which are by nature
very complex), particularly in responding to disaster events. These include:
Development of automatic flood coverage for Australia
Application of unfair terms provisions to standard form insurance
contracts
Development of a 1 page summary disclosure
Development of telephone disclosure
The challenge in insurance is that whilst general insurance is generally
obtained over the phone72, consumers rely heavily on the fine print of an
agreement. Many consumers however, do not read the details contained in
product disclosure statements.73
Even more concerning is that even when consumers read their policies,
many consumers are generally mistaken about the terms of the
agreement. Results from the Survey reveal that in respect of the
Queensland floods, 66% of consumers thought they were covered for
flood.74 Based on the lack of coverage for flood on the Queensland market
at the time of the 2011 floods and the high rejection rate, a significant
number of consumers simply misunderstood their policy terms.
Whilst financial literacy plays an important part, there is no doubt that
without a suite of reforms, including the application of unfair terms
legislation to insurance contracts, a level playing field for consumers when
34
75 See for instance Submission to Senate Economics Legislation Committee, Trade Practices Amendment (Australian Consumer Law) Bill 2009, NLA, August 2009 76 Response to Q 19, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 77 Comment Response at Q 25, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 78 Comment Response at Q 25, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 79 Response to Q 15C(ab), CILS Survey on Insurer Responses to Natural Disaster Events, 2011 80 Response to Q 15C(ab), CILS Survey on Insurer Responses to Natural Disaster Events, 2011
contracting with insurers is not likely.75
Results from the Survey suggest that policy coverage is less important
than the price of coverage on the scale of reasons why consumers chose a
particular insurance with an insurer.76 In order to redress this, insurance
policies need to be made simpler and include terms that are fair in all the
circumstances.
Some feedback that we received on the challenges of consumers properly
understanding insurer's PDS's included:
I didn't know there were so many definitions of flood. I scanned
the documents but there's lot of legalese77
This was a policy my husband took out 20 years ago and we
transferred from one house to another. We always assumed
that insurance covered you for major disasters or catastrophes.
You never find out until you claim. The definitions of flood are
so confusing, they seem designed to outwit you.78
Other challenges in relation to PDS which arose in relation to our disaster
event work has included:
Difficulty in obtaining a copy of the PDS on our request–
including excessive delays79
Difficulty in obtaining a copy of the Certificate of Insurance on
our request- including excessive delays80
35
81 Some 25% of our Surveyed clients report that they did not receive a copy of the policy at the time of cover. See Response to Q 21, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 82 Comment Response to Q 25, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 83 Comment Response to Q 25, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 84 Comment Response to Q 25, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 85 Our early investigation into the combined CILS cases suggests that up to 60% of all disputes involved an allegation of misrepresentation and/or misunderstanding of policy based on representations by their insurer. 86 Comment Response to Q 26A, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
Failure to send to our a copy of the policy at the time of cover81
Failure to send a copy of the policy at time of renewal
Some feedback from our Surveyed clients include:
I didn't get a PDS on the last renewal. When I rang about it, the
person who took my call said they weren't sending them
because no one reads them82
The Policy did not contain very much information and we did
not receive the PDS until after we made the claim.83
Client received the policy but could not read it because she has
a disability and cannot read small writing.84
Misrepresentation
The casework experience of CILS in relation to the Queensland floods
has identified ongoing concerns in relation to misrepresentation to
consumers of the terms of the policy, usually on the phone at the time
of inception or before the policy was taken out.85 These concerns are
matched with the Survey results for consumers in dispute with their
insurer. 86 Experience of cases at FOS also often includes listening to
tapes of customer service staff at the time of inception, in respect of
same issue.
Feedback from our Surveyed clients on this issue included:
Before taking out a policy with [the insurer], I asked on at least
three occasions whether I was covered for flood, to the point
36
87 Comment Response to Q 25, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 88 Comment Response to Q 25, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 89 Comment Response to Q 47, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
where the rep asked me why was I so worried about that? I
then got concerned that I wouldn't get coverage or they'd
increase the premium but this didn't happen. They just told me,
yes, you're covered for flood. There was no explanation given
about definitions between flood types. To me, a flood is a flood.
Later, when I asked for transcripts of my phone calls with [the
insurer] before taking out my policy, they couldn't provide
them87
We took out our insurance on recommendation of [mortgagee
when we got our mortgage. The representative said the policy
covers us for almost everything and he gave us a brief product
leaflet, not a policy. We relied on his recommendation.88
The marketing by this insurer was misleading. They don't put
one of the most important things you need to know in the
upfront summary of their PDS and then say, you should have
known. I notice the flood limitation is prominently displayed in
their renewal documentation, as of March, 2011.89
Given the seriousness of this issue and the importance of obtaining a
complete picture of events, a more thorough and complete investigation by
ASIC into whether occurrences of misrepresentation and/or misinformation
were widespread in respect of policies that were claimed against in
2010/11.
Recommendation
ASIC investigation
Investigation by ASIC into potential breaches of ASIC Act or Insurance
Contracts Act by insurers during the 2010/11 disaster events including
investigation of:
Claims of misrepresentation prior to or at the time of inception of
insurance policy
37
90 Response to Q 32, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 91 Comment Response to Q 47, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 92 Comment Response to Q 47, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
Service delivery
Consumers were resoundingly unhappy with the level of service provided
by their insurer. 82% of consumers described the level of service by their
insurer during the claims handling process as either poor or very poor.90 A
good starting point for industry to improving its reputation in this respect
might be to commit to improving the standards of claims handling as
outlined in this submission.
Some feedback from our Surveyed clients includes:
Extremely rude customer service person from [the insurer].
I am nearly 70, I have a lung condition and I was living in a 6 x
8 caravan at the time and she said "Oh, I lived in a caravan for
2 years". There was absolute carelessness and callousness
about our situation.91
[One insurer] is now the only one who will insure the house
while it's not repaired. They charge 16% of the premium extra
for paying by the month .I have found it extremely difficult to get
appropriate insurance - I need landlord's insurance with flood
cover and this can be difficult to find. I used an insurance
broker to reinsure. The whole industry is predatory and
uncaring. They market themselves as providing peace of mind
and reliability and it's untrue.92
My husband was fed up with them, but because we received
grants, we accepted that there were other ways for our needs
to be looked after, however, given that we had been paying the
insurance company for years, they were quite difficult and
mean spirited. This was a complete wipe out of our livelihood,
38
93 Comment Response to Q 32, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 94 Comment Response to Q 36B, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 95 Some 145 of our Surveyed consumers (68%) had their claims refused - Response to Q 36, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 96 Some 33 of our Surveyed consumers (15%) had their claims paid in part - Response to Q 36, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 97 Concerningly, some 49%of consumers have not attempted to re-insure post disaster event - Response to Q 46, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 98 Response to Q 46B, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 99 Comment Response to Q 47, CILS Survey on Insurer Responses to Natural Disaster Events, 2011
the insurer did not consider the scale of the impact on us.93
They were so callous. I asked them for special consideration,
given the amount of policies I had with them (three houses) and
the length of time I had been with them. They were not
empathetic in the slightest.94
Re-insurance & finances
The difficulty of many people to get back on their feet after significant
disaster event is a concern that needs to be considered. These challenges
include:
Developing a sustainable strategy to cope financially with a
refused claim95 or partial payout of a claim96, when the most
significant asset you will ever own is destroyed
Obtaining insurance post disaster event, particularly for those
living on flood plains97
Obtaining affordable insurance post disaster event98
Some Feedback that we received on Survey included:
Why does [the insurer] cover river flood in NSW and Victoria
and not Queensland? I am now stuck with [the insurer] because
no one will reinsure me.99
I am in a much worse financial position now. I made some
inquiries about insuring elsewhere and it was going to be
significantly more expensive. I feel trapped with [the insurer]
39
100 Comment Response to Q 47, CILS Survey on Insurer Responses to Natural Disaster Events, 2011 101 See Appendix C – CILS Combined report – unresolved cases as at 8 September 2011
and whatever cover it will give me. I just have to hope there's
never another flood.100
Ongoing impact of floods
As this year draws to a close it must not be forgotten that for a significant
number of people, particularly in relation to the Queensland floods, are still
waiting on resolution of their insurance disputes. As outlined above, the
majority of claims still remain unresolved nearly 10 months after the
Queensland floods. Of the 624 cases amongst CILS members, there are
536 still unresolved (or 88% of CILS cases).101 We can only assume that
for a number of unrepresented people in the community, they too continue
to face extended periods without a home or the benefit of a working
kitchen or bathroom.
Conclusion
We would urge the insurance industry to commit to working with
government, the regulator and community sector to improve standards of
fairness, efficiency and transparency in claims handling and to offer fairer
and simpler insurance products for consumers. We encourage industry to
commit to resolving all outstanding disputes in relation to claims following
disaster events without further delay.
Legal Aid welcomes the opportunity to provide these comments. Should
you require further information, please contact David Coorey, Senior
