AFCA reports “concerning decline in insurers’ responsiveness”

"A concerning decline," says lead ombudsman

AFCA reports “concerning decline in insurers’ responsiveness”

Insurance News

By Daniel Wood

Last week’s biannual Australian Financial Complaints Authority (AFCA) Member Forum shared alarming information about consumer complaints against insurance companies. The number of complaints in 2023 is going up compared to last year and the regulator suggested that natural catastrophes are not the main cause, insurers are.

“We have seen a concerning decline in insurers’ responsiveness trends,” said Emma Curtis (pictured above), AFCA’s lead ombudsman. “Unfortunately, insurers do seem to be struggling with overdue responses and non-responses.”

Curtis said the rates are “significantly higher” than the past two years and so are extension requests from insurers.

Most complaints “not related to catastrophes”

Last year, understandably, insurance companies could point directly to months of flooding and consequent claims processing delays as a cause of complaints. Not anymore.

“The majority of complaints that we receive are actually not related to catastrophes,” said Curtis.

Delay in claims handling is the main cause of complaints, she said, and is “affecting a whole range of insurance products.”

The lead ombudsman’s first slide showed data from the entire 2022 calendar year.

“General insurance complaints lodged with AFCA have increased exponentially over the past 12 months,” said Curtis. “We received a record number of nearly 24,000 general insurance complaints, which is an increase of 52% compared to the previous calendar year.”

However, more alarming still was the latest data that showed a 65% increase in complaints compared to the same time in 2022.

“We’ve received over 17,000 general insurance complaints already this financial year compared to 10,000 this time last financial year,” said Curtis. “And we have awarded $79 million worth of compensation just this financial year to date.”

AFCA’s lead ombudsman said last year’s high complaints numbers were due to “a combination of factors” that included the severe flooding in southern Queensland and northern New South Wales early in the year. Curtis confirmed that AFCA received over 2,000 complaints about insurers related to that flooding.

“Also, there were supply and resourcing pressures which were caused by international events and COVID-19 disruption,” she said.

Most complaints were for home building insurance

Home building insurance was last year’s most complained about product.

“What were the products that were most complained about last year?” asked Curtis, rhetorically. “In order, they were home building, comprehensive motor vehicle, consumer credit insurance, home contents and travel.”

She said AFCA saw an increase in travel insurance complaints compared to the previous year but suggested this was due to consumers travelling again for the first time after the COVID-19 lockdowns.

Delayed claim handling was the top issue complained about, said Curtis, followed by claim amount, denial of claim and service quality.

“We are concerned about the volume of complaints that we’re getting about delays,” she said. “The scale of natural disasters last year, as well as resourcing issues, we understand has put pressure on response times.”

Curtis warned that “further tests” on the industry are likely coming, including from severe weather. She also pointed to “increasing affordability and insurability issues.”

She said AFCA acknowledges that times are challenging for the insurance industry but was confident that complaint volumes can reduce over time “as some of the frictions in the system are reduced.”

“I’m sure that insurers have learned a lot about efficiencies and effective approaches over the past 12 months, which should help reduce the risk of complaints and help resolve them early when they do occur,” she said.

Curtis said AFCA “really encourage[s]” insurers to communicate regularly with customers to explain the claims process, timeframes and options available to them.

Industry efforts: Are they working?

In July last year when the regulator reported a similar dramatic rise in complaints, the Insurance Council of Australia (ICA) supported AFCA’s eagerness for collaboration and suggested claims handling times can be an issue.

“The Insurance Council and insurers continue to collaborate closely with AFCA through in-person and online community forums and to gain insights into opportunities for enhanced and quicker complaints resolution,” said an ICA spokesperson in response to questions from Insurance Business.

However, the spokesperson added that insurers were working hard to resolve claims as quickly as possible “and have put on 100s of extra staff to support claims processing.”

The latest AFCA figures suggest those efforts to reduce the number of consumer complaints caused by delays, including putting on extra staff, are failing to stem the tide.

According to brokers, insurtechs and other industry stakeholders, slow claims processes are often an insurance industry weak spot.

How do you explain the current rise in consumer complaints about insurers? Please tell us below.

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