Add-on insurance complaints made by paid representatives have soared, putting some insurers and the ombudsman service under serious pressure.

insuranceNEWS.com.au understands that such complaints, which are usually relatively low-value, made up almost one-quarter of general insurance disputes brought to the Australian Financial Complaints Authority last financial year, increasing the burden on the already strained service.

But paid representative companies say there’s nothing wrong with helping consumers get back what they are owed – and that an “arbitrary” AFCA deadline on legacy complaints is threatening their business model and limiting customers’ rights.

The Hayne royal commission, which concluded in 2019, uncovered many problems in the add-on market, including low-value products, unfair sales practices and poor claims outcomes. Add-on was labelled “junk” insurance, reforms were introduced and remediation ordered.

Paid representatives such as market leader Claimo moved into this space – targeting products such as consumer credit, guaranteed asset protection, and tyre and rim insurance.  

They have focused on helping customers secure refunds, as well as earning significant sums for themselves. While the average add-on settlement is just over $2000, some have been as large as $150,000, and companies like Claimo – which takes 30% plus GST from every settlement – can secure thousands each year.

Concerns around the volume of such complaints came to the fore earlier this year after motor add-on specialist Eric Insurance ran into trouble. The administrators’ report to creditors outlined that sharply rising complaints and associated AFCA fees “led to the failure of Eric”. 

The report says that at July 31, Eric had 733 open internal complaints and 259 open external complaints – but that is just a fraction of the many thousands of add-on complaints received by banks, insurers and AFCA every year.

Claimo told insuranceNEWS.com.au that it alone submitted more than 8000 complaints to AFCA last financial year. That’s more than 23% of the 34,231 general insurance complaints received by the ombudsman in that period.

AFCA admits this extraordinary volume can put it under significant pressure.

“AFCA often has to dedicate additional resources and efforts to deal with large numbers of complaints lodged by paid representatives,” a spokesperson said.

“This results in delays, which impacts both complainants and financial firms.”

The ombudsman says it has an engagement charter and guidance that paid representatives must follow, and it has consulted on rule changes to “help reduce delays in handling high volumes of complaints”.

AFCA wants to change the rules so it can require a paid representative to correspond through prescribed channels, including its consumer portal.

“These changes are to ensure that AFCA can deal with complaints lodged by paid representatives efficiently,” the spokesperson told insuranceNEWS.com.au.

Claimo says it should not be blamed for Eric’s demise, arguing the rise in complaints was sparked by AFCA’s deadline, and that the consumer portal is unfit for purpose.

“The suggestion that Claimo is somehow the ‘bad guy’ in this picture is misplaced,” founder and MD Nathan Mortlock said.  

“Claimo exists to help consumers who were mis-sold insurance products, including by Eric Insurance – an insurer that has been [the subject of corporate regulator] remediation for mis-selling add-on insurance.”

Mr Mortlock says AFCA’s deadline of June 30 this year for pre-2019 add-on insurance complaints is the main cause of the spike in disputes last financial year. Complaints can still be lodged but will be dealt with only if special circumstances apply.

AFCA argues the cut-off is in line with its general principle that it can only consider a complaint six years from when the complainant first became aware, or should reasonably have become aware, they suffered a loss. It says this is consistent with similar schemes overseas.

But Mr Mortlock says this logic should not be applied to “an entire population” and the large volumes of complaints coming through right up to the deadline indicates there are still many thousands of Australians in the dark, or only just realising they have suffered an add-on related loss.

He says the deadline was originally planned for February this year and it was only through Claimo’s advocacy and subsequent Australian Securities and Investments Commission scrutiny that it was pushed back to June 30.

“This arbitrary cut-off will deny tens of thousands of Australians fair access to justice,” Mr Mortlock said.

He admits the deadline creates a risk to the Claimo business model, but says he has a strategy to get it reviewed and removed.  

“The deadline isn’t just a business risk for us – it’s a fairness problem for the entire system. It locks out thousands of everyday Australians who still have valid claims and shifts power back to the very institutions that sold these junk products in the first place. We’re not accepting that outcome.”

Mr Mortlock says one consequence of the deadline is that, with the threat of AFCA escalation removed, banks and insurers are no longer settling complaints. He says before the deadline, almost 80% of complaints were resolved – roughly half through internal dispute resolution and half through AFCA.

But after June 30, the resolution rate has collapsed to 1.6%. Claimo wrote to ASIC last month “raising concerns that AFCA’s deadline has discouraged financial firms from resolving legitimate complaints and is now leading to poor consumer outcomes”.

ASIC did not respond to insuranceNEWS.com.au questions on the matter. 

Claimo has submitted 517 complaints since June 30 under AFCA’s special circumstances rule, but the ombudsman’s initial response indicates they do not meet the requirements to be considered. Claimo intends to submit further information.

In terms of potentially being forced to use AFCA’s portal, Mr Mortlock says this is a non-starter because it does not work properly.

A joint submission to the consultation from Claimo and other similar companies argued the move could be in breach of AFCA’s obligations under the Corporations Act.

“Mandating the use of a portal that is demonstrably unreliable and unfit for enterprise use is inconsistent with these statutory obligations,” the submission stated.

AFCA declined to comment on any of Claimo’s points regarding its add-on deadline or consumer portal.

Many in the industry see companies like Claimo as cashing in and making millions of dollars from consumers, when AFCA is a free service that does not require paid representation.  

But Claimo says it is helping consumers get refunds they are entitled to, its fees are transparent, and many consumers choose to use its service – for various reasons, including saving time – even though they are aware they could submit complaints for free without it.

AFCA is confident that despite Claimo’s efforts, it’s deadline will hold. If so, such vast numbers of add-on complaints could already be consigned to the past.  

Whether that is considered a positive depends very much on your perspective.

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