March 3, 2021
From January 2019 to 30 December 2020, there were 30 Australian Financial Complaints Authority (AFCA) determinations made involving insurance brokers.
As is usual, most of AFCA insurance broker determinations were in favour of the broker (20 to 10). This does not mean AFCA has gone “soft”. It simply reflects that most brokers are properly advised and settle claims that they are likely to lose. It also reflects that many brokers settle claims even if they have reasonable prospects of winning. Partly because they are concerned at the risk of AFCA’s finding and would prefer to compromise, and partly (depending on the size of the claim) to simply avoid AFCA fees which may be larger than the amount demanded by the complainant.
Of the matters that went to determination, the last two years reflected previous years in that the outcome most often depended upon who had the best documentary support and best-prepared case.
Another common issue was which exclusions needed to be discussed by a broker. Insurance brokers must keep in mind they need to go through any unusual provisions or exclusions in the policy, as well as any that seem particularly relevant or of interest to the client. They also should explain the risks of unusual instructions in writing with their client, and seek written confirmation of such instructions. Unusual instructions include those that present a risk to the client, such as instructions to back-date cancellation, underinsure, or any other gap in cover.
There is an increasing trend to award compensation for non-financial loss where no direct loss has been caused by the broker.
Something new that has arisen is that in two of the matters AFCA has found for the broker, but ordered that the broker pay the amount it had previously offered as a settlement. Those matters are:
1. The Austcover decision on 20 December 2019 where AFCA found no evidence of breach and found that even if there was a breach it caused no loss, but, as the broker had previously offered to refund the $5,000 fee charged for claims handling, AFCA ordered that it should do so.
2. Case number 543082 decision of 25 June 2019 where AFCA found a breach but found that it caused no loss, yet AFCA ordered the broker pay the $15,000 that it had previously offered plus costs. This decision is particularly grating as the claimant only claimed consequential loss and AFCA could only award compensation up to $5,000 for indirect loss and $5,000 for non-financial loss. Therefore ordering that the broker pay $15,000 because it previously offered it is particularly harsh.
These offers were most likely made in the hope of avoiding AFCA costs of proceeding to the next stage (such as determination). The take away from this is to be very clear both when making an offer and when presenting materials to AFCA, that any earlier offer was on a commercial basis to avoid further AFCA fees, and not because the broker considers it is a reflection of what they should pay the complainant.
If AFCA finds for the broker but orders it pay damages, particularly if such damages are above its jurisdictional limits for the head of damage claimed, it is worth considering taking this to the courts for review.