The IDR Process
The General Insurance Code of Practice (Code) was first introduced in 1994 and is the instrument by which the general insurance industry sets standards for its own conduct over and above legal requirements. The Code has been reviewed in 1998, 2006, 2009, 2012, 2015 and 2017 and improvements made to ensure the Code remains relevant and meets the needs of consumers. The Code and general reviews have included claims handling procedures including Internal Dispute Resolution (IDR) and External Dispute Resolution (EDR) processes. All licensed financial service providers must have a process in place to resolve a dispute with consumers. This is the purpose of IDR and it is the first step a consumer must take in resolving a dispute.
What are the steps after an insurer’s claims team has declined a claim?
In response to any claim declinature, an insurer should provide written reasons for their decision in declining a claim. In addition, the consumer should be informed of their right to ask for copies of information relied upon by the insurer in assessing the claim (if an insurer declines to release such information section 3.5.3 stipulates that the insurer must provide written reasons on why the information will not be released). The insurer is also required to outline their complaint handling procedures (IDR).
What is the process involved in lodging a dispute resolution with IDR?
The Insurers formal claim declinature should outline the reasons why the claim has been declined and outline the IDR process. The consumer is the only person who can lodge a dispute resolution with IDR. In some instances AIMS has been advised that the insurers claim team has automatically referred a claim to IDR however, this is against the Code.
How does the IDR team handle the dispute resolution?
The Code stipulates that the IDR team involved in the dispute resolution must be separate from the claims team involved in the claim declinature. The IDR team is completely independent and will review the claims information used by the claims team to review the claim declinature. The IDR team may also call for additional information to assist them in their claims review. In discussions with a major insurer, we were advised that a small percentage of claims referred to IDR were overturned and subsequently accepted. In all of AIMS dealings with insurers involving IDR, it has not experienced any claims overturning. A broker should not rely on an IDR team adopting a more pragmatic or different approach to the claim review.
Is the insurers IDR decision final?
Yes, once an insurers IDR team communicate their decision it is FINAL. The insurer will not enter into any further discussions with the broker (and consumer) unless additional information previously not presented or unavailable at the time, is submitted to the insurer. It is not possible for a broker to enter into commercial negotiations or ex-gratia payments with the IDR team. Furthermore, the insurer cannot overturn their IDR teams decision. It is possible for the consumer (and broker) to go back to the insurer (not IDR) and attempt a commercial settlement. However, the consumer (and broker) should not rely on this process as insurers are extremely reluctant to enter into commercial negotiations unless there is a compelling case.
What are the consumer’s options after the IDR decision?
The IDR decision will outline the reasons for declinature and provide the consumer with advice on further steps to resolve the dispute. This may include referral to the Financial Ombudsman Service (FOS) or another External Dispute Resolution (EDR) party. In the event that FOS upholds the previous claim declinature, the consumer’s only other recourse will be to pursue legal action (except for any commercial negotiations as outlined above).
Does FOS handle all disputes after the IDR declinature?
FOS was set up as an independent forum to resolve disputes between consumers and financial service providers. The service is free of charge to consumers and its operational costs are met by the financial service providers. FOS can only consider a dispute in relation to a general insurance policies which are:
Retail General Insurance Policy
Residential Strata Title Insurance Product
Small Business Insurance Product Medical Indemnity Insurance Product
However, FOS may consider a dispute outside these terms of reference where all parties to the dispute and FOS agree to do so. If this option is triggered, other procedures apply to the dispute resolution process. A broker should not rely on FOS hearing a claim outside their jurisdiction.
Is FOS’s decision binding upon the consumer?
Unlike the insurer’s mandatory acceptance of FOS’s decision on the dispute, the consumer does not have to accept their decision and is able to seek legal recourse if required.
In summary, the main points that AIMS wishes to highlight in the IDR process are:
Ensure that all claims information including supporting technical reports to support the consumers claim (e.g. engineering, geotechnical, building, weather reports etc.) and specialist claim consultants reports (including AIMS if required) are obtained to support a consumer’s claim. The insurance environment is dynamic with insurers margins under pressure and with any sizeable claim particularly with some complexities on policy cover or with multiple causation events etc., it is likely to be thoroughly investigated. Once an insurer reaches a claim decision, it is extremely difficult to overturn this unless there is new compelling information.
Be aware that once the consumer proceeds with an insurers IDR process, this decision is final. This is not widely communicated and the only time the IDR team can re-open a dispute is if new claims information comes to hand. The IDR team will not enter into any commercial discussions and an insurer cannot overturn its IDR team’s decision.
Be aware that FOS is limited in its scope. Commercial covers such as ISR, General Liability, Motor and other financial covers fall outside of FOS’s jurisdiction. The only avenues for a consumer to pursue settlement for non FOS disputes is through commercial negotiations with the insurer or legal recourse.
If you have any more specific questions relating to the IDR process then, please contact your Broker.
John Tippett, Technical Consultant
A & I Member Services Pty Ltd
Katherine (08) 7919 7019
2/46 Chardon St