Insurers and consumer advocates have raised concerns at the industry ombudsman’s proposed new approach to claims disputes.

The Insurance Council of Australia wants a “more balanced” approach to the obligations of companies and customers, particularly given the contractual nature of the relationship.

ICA’s submission also flags the Australian Financial Complaints Authority’s guidance on cash settlement disputes.

AFCA says it may decide to direct an insurer to complete home repairs because a complainant is vulnerable and unlikely to cope with the task.

But ICA says that sometimes, cash settlement is the only viable option.

“We emphasise that insurers have a strong preference to manage the repair or rebuild of properties subject to a claim themselves given the warranties this provides,” the submission says.

“It is important to articulate within the approach the impact of certain customer activities or behaviours that can impact a general insurer’s ability to conduct the repairs.” 

ICA also urges AFCA to provide guidance on the role of third parties acting for complainants who may be involved for financial gain.

It says AFCA’s plan to provide contingencies on cash settlement offers “may incentivise such representatives to pressure customers for cash settlements in circumstances where it may not be in their best interest and it is the insurer’s preference to manage the repair”.  

ICA wants more clarity on the use of expert reports. It says claims decisions are made based on information available and supported by relevant advice from independent, qualified experts.

“These decisions are not made with the benefit of hindsight. If AFCA later prefers an alternate expert opinion, this should not alone be grounds for a breach finding.”

In another submission, the Australian Consumers Insurance Lobby says the ombudsman should “be seen to have ‘more teeth’ if it deems an insurer to be in breach of its duty of utmost good faith or falling short in its claims handling processes”.

The consumer group says AFCA’s approach document must make clear that cash settlements based on discounted panel builder rates are unfair; recognise advocacy firms as legitimate representatives whose costs can be reimbursed; and treat repeated reliance on flawed expert reports as systemic claims handling breaches.

AFCA expects to publish its final approach document later this year.

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