AIDA PRESIDENTIAL COUNCIL MEETING
ISTANBUL 2ND – 5TH MAY 2012
Consumer Protection, Dispute Resolution & Distribution of Insurance
Chris Rodd
Melbourne, Australia
Monash University and
CGU Insurance
Insurance Disputes
Forum Options
2
1.
The courts
including mediation and arbitration
2.
Pre Contractual agreements
including referral to arbitration and mediation
3.
Small Claims Tribunals
4.
Insurance Companies Internal Dispute Resolution Departments
(IDR)
5.
Insurance Industry External Dispute Resolution Forum (EDR) –
Financial Ombudsman Service (FOS)
Insurance Contracts
• Governed by the Insurance Contracts Act (1984).
Purpose of the act –
To regulate the behaviour and activities of insurers and
insureds. It is primarily consumer protection legislation with a
broad scope governing all aspects of the interaction between
insurer and insured.
• Common law principles still apply where not otherwise regulated by
the Act
• Key features embodied in the Act
- Mutual duty to Act with “utmost good faith” (Sections 13 & 14)
- in respect of both pre contractual negotiations and post contractual
behaviour
3
General Insurance Industry Code of Practice
•
•
•
•
4
Voluntary Code of Practice instituted by the industry in 1994
following a long consultative process
It was voluntary and had regulatory control or intervention
- self regulation only
Code embraced Motor Vehicle, Home and Contents, Personal
Accident and Sickness, Travel, Consumer Credit, Recreational
Marine Craft and Caravan Insurance
Subsequently amended twice
- now covers all General Insurance products except:
- workers compensation, marine, medical indemnity,
compulsory third party (MV)
- it also does not apply to life insurers or registered health
insurers.
Purpose of the Code
•
•
•
•
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“Raising standards of service by insurers for the benefit of their
customers in both the area of sale of insurance products
renewal of cover and the administration of claims”
Covers the behaviour and conduct of insurers and authorised
agents such as
- sales agents
- repairers
- builders
- loss assessors and adjusters
Financial Ombudsman Service (FOS) responsible for monitoring
compliance with the Code.
Sanctions imposed against insurers for non compliance
Features of the Code
•
Buying insurance
 Take into account only relevant information
 Access to information relied on by insurer
•
Standards of employees and authorised representatives
 Conduct services in an honest, efficient, far and transparent manner
 Obligation to train authorised representatives and employees
•
Administration of insurance claims
 Time limits for managing claims
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6
Notify decision concerning claim within 10 business days (qualifications)
Appoint an assessor and notify insured within 5 business days
Keep customer informed of progress every 20 business days
Respond to insureds request for information within 10 business days
If “exceptional circumstances” apply will make a decision concerning claim within
12 months (usually fraud claims)
Features of the Code cont.
•
•
Standards for employees and service providers for claims
handling
Financial hardship –
 Fast track claim
 Advance payments within 5 days of demonstrating urgent financial
need
 Compliance with regulatory guidelines re: debt collection (ACCC &
ASIC Debt Collection Guidelines)
 Financial difficulties re: debt collection vary or postpone repayment
 Guarantee workmanship or authorised repairers
7
•
Responding to catastrophes and disasters
•
Information and education re: insurance products and premiums
Features of the Code cont.
•
Code monitoring and enforcement
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FOS to provide annual report re: code compliance
Obligation on insurers to report code breaches to FOS
Establish corrective measures to comply with the code
Serious or systemic breaches reported to code compliance committee
Sanctions –
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8
Rectification steps
Compliance audit
Corrective advertising
Publication of non compliance
Complaints handling procedures
Complaints handled in a fair, transparent and timely manner
•
Internal Dispute Resolution – Complaints
-
9
Respond to complaints within 15 business days where all relevant
information has been provided
If further information required – agree reasonable alternative time frames
Keep informed of progress
Complaints handling procedures cont.
•
Internal Dispute Resolution – Disputes
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10
If insured says they want complaint decision reviewed it is treated as a
DISPUTE.
Respond to dispute within 15 days
Similar process as complaints
Give reason for final decision
Provide information concerning External Dispute Resolution Schemes
If not able to resolve complaint to satisfaction of customer within 45 days
advise customer of Financial Ombudsman Service (FOS)
Complaints handling procedures cont.
•
External Dispute Resolution – Financial Ombudsman Service
(FOS)
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-
Responsible for administering disputes in relation to General Insurance, Life
Insurance, Superannuation, Banking, Credit Institutions, Financial Planners,
Stock broking, Funds managers & Estate Planners
Access to scheme is free to consumers
It is a national service
Monitors complaints with Codes of Practice;
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Operations of FOS governed by “Terms of Reference” (ToR)
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Banking Code
Insurance Brokers Code
General Insurance Code
Mutual Banking Code
ToR applies to all Financial Service Providers (FSP’s)
Prior to 31/12/2009 FOS operated under 5 difference ToR’s (Banking &
Finance, General Insurance, Insurance Broking, Investments, Life
Insurance & Superannuation and Mutuals.
Key Features of FOS –
External Dispute Resolution
•
•
Free to consumers
Can adjudicate disputes for all classes of General Insurance
except;
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Life Insurance or Superannuation
Compulsory Third Party Motor Vehicle Insurance
Workers Compensation
Product Liability
Industrial Special Risks (ISR)
Professional Indemnity, Fidelity Guarantee
Public Liability
Contractors all risks
Loss of Profits / Business Interruption
Key Features of FOS – External Dispute Resolution Cont.
•
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Can hand down a binding Determination against an Insurer for an
amount up to $280,000
Key Features of FOS – External Dispute Resolution Cont.
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•
14
Can handle disputes for uninsured third parties in relation to
Motor Vehicle property damage up to $3,000
Cannot handle disputes where the amount in dispute in respect
of claim exceeds $280,000 unless the insurer consents
Key Features of FOS – External Dispute Resolution Cont.
•
A dispute in relation to an insurers final decision must be lodged
with FOS within 2 years of the decision
6.2 Time limits
a) Where a Dispute relates to a variation of a Credit Contract as a result of
financial hardship, an unjust transaction or unconscionable interest and other
charges under the National Credit Code, FOS will not consider the Dispute
unless it is lodged with FOS before the later of the following time limits:
(i) within two years of the date when the Credit Contract is rescinded,
discharged or otherwise comes to an end; or
(ii) where, prior to lodging the Dispute with FOS, the Applicant received an
IDR Response in relation to the Dispute from the Financial Services
Provider - within 2 years of the date of that IDR Response
15
Key Features of FOS – External Dispute Resolution Cont.
•
Determinations of FOS are binding on a insurer but NOT on a
consumer/applicant
8.7 a) Each Recommendation and Determination
(i) must be in writing;
(ii) may either reach:
(A) a conclusion about the merits of the Dispute; or
(B) the view that, given the procedures adopted by FOS, it would not be
appropriate for FOS to reach any conclusion as to the merits of the
Dispute;
16
Key Features of FOS – External Dispute Resolution Cont.
•
Decisions are made applying the following criteria
8.2 Dispute resolution criteria
Subject to paragraph 8.1, when deciding a Dispute and whether a remedy should be
provided in accordance with paragraph 9, FOS will do what in its opinion is fair in all
the circumstances, having regard to each of the following:
a) legal principles;
b) applicable industry codes or guidance as to practice;
c) good industry practice; and
d) previous relevant decisions of FOS or a Predecessor Scheme (although FOS
will not be bound by these).
•
FOS is not bound by any legal rules of evidence
8.1 Rules of evidence
FOS is not bound by any legal rule of evidence.
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Key Features of FOS – External Dispute Resolution Cont.
•
•
FOS has very limited power to adjudicate disputes concerning the
premium charged by an insurer (5.1)
Cannot consider a dispute if the matter has already been
adjudicated by a Court, or dispute resolution tribunal established by
legislation (5.1 [a])
5.1 Exclusions from FOS’s jurisdiction
The Service may not consider a Dispute:
a) about whether a Financial Services Provider has met confidentiality or privacy
obligations unless the Dispute about confidentiality or privacy:
(i) is part of a broader Dispute between the Financial Services Provider and
the Applicant; or
(ii) relates to or arises out of the provision of credit, the collection of a debt,
credit reporting and/or the banker-customer relationship;
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Key Features of FOS – External Dispute Resolution Cont.
•
•
A discretion to exclude a dispute if the dispute is frivolous or
vexatious, lacking in substance or if after the dispute is lodged
the applicant issues legal proceedings
Cannot consider a dispute unless dispute lodged with FOS
within 6 years of Applicant first becoming aware of the loss
(6.2[b])
6.2 Time limits
b) In all other situations, FOS will not consider a Dispute unless the Dispute is
lodged with FOS before the earlier of the following time limits:
(i) within six years of the date when the Applicant first became aware (or
should reasonably have become aware) that they suffered the loss; and
(ii) where, prior to lodging the Dispute with FOS, the Applicant received an
IDR Response in relation to the Dispute from the Financial Services
Provider - within 2 years of the date of that IDR Response
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Key Features of FOS – External Dispute Resolution Cont.
•
FOS can handle fraud related disputes but has authority to
exclude if process would entail the cross examination of a third
party witness or a Court is a more appropriate forum (5.2[a])
5.2 Discretion to exclude Disputes
FOS may refuse to consider, or continue to consider, a Dispute, if FOS considers
this course of action appropriate, for example, because:
a) there is a more appropriate place to deal with the Dispute, such as a court,
tribunal or another dispute resolution scheme or the Privacy Commissioner;
20
Key Features of FOS – External Dispute Resolution Cont.
•
Applicants can lodge disputes
- By phone
- Fax
- Email
- Letter (6.1)
All responses must be in writing
21
FOS Dispute Resolution Methods
•
•
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Negotiation
Conciliation or mediation
Determination
None of the processes binding on an applicant but Determination
is binding on an insurer (8.7[b])
8.7 Recommendations and Determinations
b) A Determination is a final decision and is binding upon the Financial Services
Provider if the Applicant accepts the Determination within 30 days of receiving
the Determination.
•
•
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FOS may make a Recommendation (usually up to $10,000)
which is not binding on either applicant or insurer
Either party may seek a Determination if the recommendation
is not accepted
FOS Dispute Resolution Methods cont.
•
FOS can require parties to a dispute to attend for an interview
7.3 Other obligations of the parties to the Dispute
a) FOS may require a party to a Dispute to do anything else that FOS considers
may assist FOS’s consideration of the Dispute. This may include requiring:
(i) a party to a Dispute to attend an interview; or
(ii) the Financial Services Provider to investigate a Dispute further or to
appoint an independent expert to report back to FOS on a matter
pertaining to the Dispute.
b) A party to a Dispute must comply with such a request within the timeframe
specified by FOS.
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FOS Dispute Resolution Methods cont.
•
Remedies
9.1 Types of remedies
Subject to paragraphs 9.2 to 9.8, FOS may decide that the Financial Services Provider
undertake a course of action to resolve the Dispute including:
a) the payment of a sum of money;
b) the forgiveness or variation of a debt;
c) the release of security for debt;
d) the repayment, waiver or variation of a fee or other amount paid to or owing to
the Financial Services Provider or to its representative or agent including the
variation in the applicable interest rate on a loan;
e) the reinstatement or rectification of a contract;
f) the variation of the terms of a Credit Contract in cases of financial hardship;
g) the meeting of a claim under an insurance policy by, for example, repairing,
reinstating or replacing items of property; and
h) in the case of a Dispute involving a privacy issue with an individual - that the
Financial Services Provider should not repeat conduct on the basis that it
constitutes an interference with the privacy of an individual or that the
Financial Services Provider should correct, add to or delete information
pertaining to the Applicant.
Plus up to $3,000 for “general damages”
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FOS Fees
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Registration $50
If dispute accepted by FSR (Insurer) an additional $100 is
charged
Disputes categorised as Simple, Standard or Complex.
Different fees apply.
Settled by –
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Negotiation / Conciliation $1,500
Recommendation $1,500 - $3,500
Determination (Level A) $2,000 - $4,000
Determination (Level B) $3,500 - $5,500
Level B (Panel) $5,000 - $7,000
FOS Insurance Related Dispute Numbers
(2010 – 2011 data)
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Context – Australian General Insurers issued 37,186,220
policies in 2011
General Insurance Claims lodged – 3,810,513
Claims declined – 66,296 representing 2% of all claims lodged
Customers lodged 23,285 disputes of which 22,673 were
resolved by insurers through IDR processes (15,527 in favour of
insurer and 7,146 in favour of customer)
FOS received 8,781 general insurance disputes in 2010-2011
(650 involved Queensland and Victorian floods) of which 5,627
were accepted within jurisdiction
FOS case load 2010 - 2011
Outcome Type
%
Assessment
2
0%
Conciliation
6
0%
741
15%
1153
23%
Discontinued
624
12%
FSP Offer/Action Confirmed
269
5%
Negotiation
107
2%
Outside Terms of Reference
363
7%
Resolved by FSP
1799
36%
Total Cases Closed
5064
Decision in Favour of Applicant
Decision in Favour of FSP
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No. Cases