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Tuesday, June 7, 2011

Insurance disputes in Australia

The bigger a natural disaster, the greater the cost to insurance companies. Insurers facing very expensive payouts (and pressure from re-insurers) are desperately keen to stick strictly to the wording of policies, and keep costs as low as possible. Consequently the meaning of words becomes very important, differences of interpretation are inevitable, and disputes will arise.

In Australia a significant number of disputes have arisen between claimants and their insurers over flooding and insurance cover in Queensland and Victoria earlier this year. So far 400 disputes have been filed, more than three times the number arising from the Victorian bush fires, with another 400-500 disputed claims in the pipeline.

Insurance disputes in Australia are handled by FOS (the Financial Ombudsman Service), a private service similar to the New Zealand Insurance and Savings Ombudsman (ISO).  The FOS dispute resolution process has some parallels with the NZ equivalent, but is less procedurally oriented to the insurance company's needs (e.g. you can complain to FOS while still in the process of being in dispute with the company. In NZ you must wait for the company to give you a letter of Deadlock before you are allowed to complain to the ISO).

Once FOS begin investigating a dispute they take a case management approach drawing on the following:
  • negotiation
  • conciliation or mediation
  • deciding the dispute in accordance with their set process
Of particular interest is the face to face way in which the dispute is managed. FOS arrange meetings between the parties, to see if differences can be resolved before a more formal procedure is adopted. In the case of the Queensland and Victorian floods, FOS is visiting each of the flood victims for a one on one meeting.

It is interesting to compare this with the remote and unhelpful approach of New Zealand's ISO, which has in the past stated they will not set up an office in Christchurch to handle local earthquake insurance complaints. It is also interesting to speculate whether the Parliamentary Ombudsmen will adopt a FOS-like approach to complaints against EQC.

For now it looks as though our playing field is definitely not level, and tipped in favour of insurers. A cynic might say insurers will use this imbalance to apply the Humpty Dumpty dictat: "When I use a word," Humpty Dumpty said, in a rather scornful tone, "it means just what I choose it to mean - neither more nor less." (from Through the Looking Glass).

The FOS web page outlining their dispute process is here, information on the handling of disputes arising from the floods is on the Australian insuranceNEWS website here. A previous post on the ISO is here.
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