'Deeply concerned': AFCA criticises industry as dispute delays spiral

Rising complaint numbers and a poor industry response is resulting in significant dispute resolution delays, the Australian Financial Complaints Authority (AFCA) says.

Speaking at the AFCA virtual member forum today, CEO and Chief Ombudsman David Locke warned complaint numbers could hit 100,000 this financial year, compared to 72,358 last financial year.

Natural catastrophes and a rise in complaints around claims handling have had a major impact on insurance complaint numbers, as have increasing numbers of scams in the banking sector.

insuranceNEWS.com.au has been contacted by insurance brokers concerned about the length of time some disputes are taking. One broker flagged “extensive delays in [AFCA’s] handling of matters”, noting that “one residential claim has been with them for nine months and not yet referred to a panel”.

AFCA last year apologised for delays, but the problems have not been resolved.

“This increase in volumes – particularly around delays in insurance claim handling – is severely impacting AFCA’s ability to resolve disputes in an efficient and timely way – with delays in processing and allocating complaints across most product areas,” Mr Locke said today.

But he also stressed that “volumes are not the only cause for delays”, noting a decline in industry performance in addressing and resolving complaints before they reach AFCA.

“Fewer complaints are being resolved after referral back to the financial firm, while more members are asking for extensions or not responding to complaints in the timeframes outlined in RG271.”

Internal Dispute Resolution (IDR) is the “first port of call”, he says, and External Dispute Resolution (EDR) was never designed to be “the only avenue for redress”.

“We understand the challenging environment. However, we are deeply concerned that firms are not meeting their IDR and EDR obligations – particularly in insurance.”

Mr Locke says AFCA is taking a number of steps to reduce delays but that these will come at a cost to members.

It is investing in technology solutions to speed up parts of the process, recruiting and re-assigning staff to high-impact product areas, batching complaints that lend themselves to one defined approach, and regularly communicating with complainants about the progress of their complaint.

“Members must explore ways to improve the resolution of complaints before they reach AFCA, or in the early stages of our process,” Mr Locke says.

“Early resolution is good for complainants and members, and enables AFCA to prioritise complex or particularly urgent complaints – such as those relating to financial hardship and consumers severely impacted by natural disasters.”

According to AFCA’s last annual review, in the year to June 30 2022 the average time taken to close a complaint was 72 days, but this includes all complaints and not just those that go all the way to a determination. About 3% of complaints took more than a year to resolve.

A spokesperson for the Insurance Council of Australia told insuranceNEWS.com.au that the record flood event last year, which resulted in almost 240,000 claims, was one of three declared catastrophes in 2022 and “represented the single largest event in an already stretched system of claims”.

“The flood put significant pressure on the systems insurers use to respond to customers, as AFCA has acknowledged it has done on their own systems and processes,” the spokesperson said.

“Insurers work hard to look after customers, but acknowledge complaints may inevitably arise.

“Many more disputes have been resolved using insurers’ internal dispute resolution processes, and the industry will look closely at the issues that have been reported through the external AFCA process.”