AFCA's Limits Fail Policyholders on Large Claims

The Australian Financial Complaints Authority and my opinion…

Here is a controversial position on AFCA but one that my 25 years plus dealing with insurance and legal (on both sides of the fence) tells me is right:

AFCA’s jurisdictional limits are too high and new processes for larger claims are needed.

Let me explain.

The AFCA being at no cost to insureds means it makes sense:

• to file at AFCA over going to court;
• Court is costly and requires a lawyer;
• Plus at Court costs can be awarded.

AFCA takes risk off the table. Good for small claims, not for larger claims.

The larger the claim and the stronger the prospects of success the more policyholders are disadvantaged.

AFCA doesn’t get the balance right between insurer and insured.

Insureds often do not obtain legal advice, nor are they encouraged to do so, they are trusting in a system that it will be ‘fair’.

The absence of advice and AFCA’s approach to evidence means the system is stacked against them. Think about it:

• insurers are well advised. They effectively have unlimited resources.

• insurers who deny larger claims do not face the repercussion of cost awards.

AFCA jurisdictional limits and their increase is really is a win-win for insurers.

AFCA balances the scales to the advantage of insurers on evidence too. They know how to obtain expert evidence at low cost through preferred parties.

The whole process creates a false sense of security for insureds.

It wouldn’t matter so much if the cases related to smaller litigation like under $50,000 or $100,000.

But now AFCA is hearing huge claims.

The jurisdictional limits allow AFCA to hear general insurance disputes over $600,000.

The truth is this:

AFCA should be awarding costs for matters over $100,000 and most certainly over $250,000. Otherwise, there is no disincentive to insurers wrongly denying and no encouragement for insurers to narrow issues and resolve claims early.

AFCA, whether openly or not discourages the use of lawyers even if by virtue of its rules not supporting it.

Further, because AFCA lacks the rigour of assessing expert evidence like a court or tribunal where there are specified practice notes ensuring independence of expert witnesses and other objective steps it is not appropriate for larger disputes without adjustment to its rules. Eg. AFCA prefers written evidence over oral evidence and so naturally the financial firm with business like record keeping is benefited.

My view is this, AFCA needs to start to deal with larger claims differently. It needs to encourage insureds to obtain legal advice and meet costs awards for larger claims and reconsider its approach to evidence for larger claims.

The process needs to be balanced if AFCA is to continue to hear large disputes.

This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Tagged as:

• insurance law
• litigation
• legal practice
• regulatory compliance
• property disputes