Written by Erin Martin
Pursuant to the Australian Financial Complaints Authority’s Rules, rule D.3.3(b) to be precise, AFCA can make a determination requiring an insurer to compensate a complainant for non-financial loss if the complainant has experienced ‘an unusual degree or extent of physical inconvenience, time taken to resolve the situation or interference with the Complainant’s expectation of enjoyment of peace of mind…’. For complaints lodged on or after 1 January 2024 this amount is a maximum of $6,300 per claim.
AFCA determinations have referred to this compensation being payable:
- As a result of ‘poor claims handling or other actions of the insurer which cause an unusual degree of stress, delay or inconvenience’ (case 971441);
- ‘Where there are instances of poor management and/or failures by the insurer that may result in an unusual degree or level of inconvenience, stress, anxiety, delay or interference’ (916423);
- Where a phone consultant ‘acted inappropriately’ (case 931570).
However, AFCA have also stated that:
- It expects ‘claimants to be moderately robust and we will not award compensation for the ordinary degree of inconvenience involved in making a claim’. (case 971441);
- It is accepted that a claimant ‘will experience a certain degree of inconvenience, stress and anxiety regardless of how the insurer may manage the claim’ (case 916423);
- It expects ‘the complainant to be moderately robust, bear the normal degree of inconvenience experience when a problem occurs, and take reasonable steps to minimize the inconvenience suffered’ (case 931570).
Case 931570
The insured alleged that in a phone call relating to affordability of her home and contents policy, the insurer’s representative was rude, did not do their job properly, and caused unnecessary stress. In relation to the call (which lasted less than four minutes), AFCA commented:
‘I am satisfied the call was not well handled. The consultant became quickly frustrated with the complainant, who, in turn, became frustrated with the consultant. While the consultant was dismissive of and, at times petulant with, the complainant, the complainant’s tone and levels of agitation contributed to the situation.’
The insurer immediately took steps to redress the situation, with a manager calling the insured the same day, apologising, acknowledging the call was not handled correctly, acknowledging the distress and inconvenience the insured may have felt, and offering a $200 premium reduction as compensation.
AFCA took the insurer’s apology and acknowledgement as an admission sufficient to allow an award for compensation for non-financial loss, and considered the $200 reasonable (only without the condition that it be a reduction off the premium).
Case 916423
In relation to a motor vehicle claim, the insured alleged mental and financial harassment by the insurer, and that due to stress caused by the claims process he ‘struggled to maintain focus while walking’ which caused him to fall and suffer an injury.
The insurer accepted (prior to the AFCA determination) that it was appropriate that some compensation be made, such that in relation to the issue of non-financial compensation, the only relevant issue was the amount.
The insurer had offered $2,000.00. The insured was seeking $5,400.00 (the maximum at the time).
AFCA accepted there was stress and inconvenience suffered by the insured, but did not accept he was off work for the two weeks claimed, and further considered that it was ‘too remote to attribute [his fall] to the claim’. AFCA also did not accept the claims of harassment.
AFCA considered the $2,000.00 which was offered to be reasonable and ‘equivalent to the amount [AFCA] would have required the insurer to pay, had it not made its offer’.
Case 971441
The insurer denied a claim for property damage caused after a ‘deep pit´ developed underneath the insured’s property. The insured claimed it was caused by subsidence as a result of a plumbing leak (an insured event), however, expert evidence obtained by the insurer (including evidence of a forensic structural engineer, a plumber, and a second engineer who reported in relation to photographs, water and drainage diagrams and groundwater data) identified the property damage was caused by a decommissioned well under the property (not an insured event).
AFCA agreed with the insurer in terms of policy coverage. However, while accepting that it took time for the insurer to arrange its experts to perform testing and provide reports, so as to allow the insurer to consider the claim, AFCA determined the six months the insurer took to decide the claim ‘caused unnecessary stress and inconvenience for the complainant’, and determined $1,500.00 compensation for non-financial loss should be paid.
Summary
The non-financial loss provisions are designed to compensate insureds beyond or outside their policy entitlements when an Insurer acts inappropriately. The above cases are evidence that insurers ought too:
- Not be rude but if they are they should apologise. However, it should be noted any apology may be taken as an admission in relation to an entitlement for non-financial loss;
- Be compassionate and offer fair compensation when it is due, but note that while AFCA may increase an award from an amount offered, it may not decrease it if too much was offered (noting in the above cases AFCA accepted the amounts offered as reasonable); and
- Thoroughly and completely investigate claims before declining them, but not take too long in doing so (as even when a claim is rightfully denied, compensation may still be payable if that decision took too long).
In summary, insurers should mind their p’s and q’s, and progress matters as thoroughly and quickly as possible, and remember the $ and ¢ that could be payable as non-financial compensation should an AFCA complaint be made.
Should you wish to discuss any of the above, please contact Erin Martin on 08 6165 2459 or any member of the Ligeti Partners team on 03 9947 4500.
