The Australian Financial Complaints Authority is consulting on its approach to general insurance claims handling disputes.

The authority has published a draft document that sets out how it approaches various types of claims complaint, set against insurers’ legal obligations and industry standards.

The consultation runs to August 29, and AFCA expects to publish a final approach document late this year.

The draft document says insurers have an obligation to handle and resolve claims consistent with the duty of utmost good faith. This includes making timely responses and handling claims fairly.

It says the General Insurance Code of Practice provides guidance about time frames and conduct.

“However, these are standard time frames,” it adds. “They are not, of themselves, conclusive about whether a claim has been handled fairly or reasonably promptly. For example, a simple claim for a broken window that is plainly covered should generally not take the insurer four months to accept (clause 77 of the code).”

If a claim is mishandled, AFCA will consider “fair remedies” for financial and non-financial loss.

“In awarding financial losses, it is important to note any policy caps or limits would not apply,” the document says. “For example, if an insurer’s poor repairs resulted in a home being a total loss or further damage to contents, it cannot apply the sum insured or policy limits to that loss.”

The document addresses common complaint scenarios relating to delays, cash settlements and denials involving expert reports.

AFCA says it must be satisfied that any delays were unreasonable and caused by factors within the insurer’s control.

“To the extent they were not, it is unlikely AFCA will accept the insurer breached its obligations. For instance, it has been well documented that there have been issues securing trades and materials in the motor and home industries. This has resulted in claim delays that were outside the insurer’s control.”

AFCA says that while insurers often have a discretion to cash settle, they cannot “unilaterally” decide how to settle the claim.

“For example, an insurer may want to cash settle a large home building claim where the complainant is vulnerable and unlikely to be able to deal with or manage the repair process. This may not be fair because the logistics involved in the repairs are complex and overwhelming.”

Failing to provide a fair or inadequate cash settlement would also be considered a breach of an insurer’s obligations.

Find more information and read the draft document here.