AIDA PRESIDENTIAL COUNCIL MEETING ISTANBUL 2ND – 5TH MAY 2012

Consumer Protection, Dispute Resolution & Distribution of Insurance

Chris RoddMelbourne, Australia

Monash University and

CGU Insurance

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Insurance Disputes

Forum Options

1. The courtsincluding mediation and arbitration

2. Pre Contractual agreementsincluding 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)

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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

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General Insurance Industry Code of Practice

• 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.

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Purpose of the Code• “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

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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

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)

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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

• Responding to catastrophes and disasters

• Information and education re: insurance products and premiums

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Features of the Code cont.

• Code monitoring and enforcement 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 –

Rectification steps Compliance audit Corrective advertising Publication of non compliance

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Complaints handling procedures

Complaints handled in a fair, transparent and timely manner

• Internal Dispute Resolution – Complaints- 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

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Complaints handling procedures cont.

• Internal Dispute Resolution – Disputes- 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)

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Complaints handling procedures cont.

• External Dispute Resolution – Financial Ombudsman Service (FOS)

- 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;

- Banking Code- Insurance Brokers Code- General Insurance Code- Mutual Banking Code

- Operations of FOS governed by “Terms of Reference” (ToR)- 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.

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Key Features of FOS – External Dispute Resolution• Free to consumers

• Can adjudicate disputes for all classes of General Insurance except;

- 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

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Key Features of FOS – External Dispute Resolution Cont.

• Can hand down a binding Determination against an Insurer for an amount up to $280,000

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Key Features of FOS – External Dispute Resolution Cont.

• 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

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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

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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;

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Key Features of FOS – External Dispute Resolution Cont.

• Decisions are made applying the following criteria8.2 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 evidence8.1 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;

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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

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FOS Dispute Resolution Methods

• 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.

• 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

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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.

• Remedies9.1 Types of remediesSubject 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

• 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 – - 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

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FOS Insurance Related Dispute Numbers(2010 – 2011 data)

• 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

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Outcome Type No. Cases %

Assessment 2 0%

Conciliation 6 0%

Decision in Favour of Applicant 741 15%

Decision in Favour of FSP 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

FOS case load 2010 - 2011