The surge in general insurance complaints handled by the Financial Ombudsman Service (FOS) last year is bad news for an industry that faces regular inquiries and often ranks poorly in public image surveys.

While insurers emerged relatively unscathed from the recent Senate inquiry examining transparency, competition and rising prices in the sector, issues of trust and confidence remain central to the industry’s future.

Poor handling of disputes with customers risks undermining the industry’s efforts to enhance its reputation and show it is responsive to pressure for improvement.

The number of general insurance disputes received by FOS jumped 25% last financial year, after a 19% increase in the previous year. They were a major driver of the overall rise in disputes landing on the ombudsman’s desk.

FOS accepted 8756 insurance disputes into case management, up 28%, according to the annual review released last week.

Once a dispute is accepted, FOS refers it back to the organisation concerned, offering a second opportunity to resolve issues. But insurers performed poorly at that stage of the process, too.

“The insurance industry is less successful at resolving matters at that time than the banks and other large providers,” Lead Ombudsman, General Insurance, John Price tells insuranceNEWS.com.au.

“It is unclear exactly why that has occurred.”

Nevertheless, Mr Price points to a range of potential issues, including industry changes occurring while the sector faces pressure from lacklustre premium growth and low investment returns.

“We have had, during the year, significant issues with the insurance industry and its failure to respond and provide information as required under our terms of reference,” he says. “When we talk to the industry and we talk to the representatives, we hear about the organisational changes, restructuring, the resourcing of the areas that clearly impact on the industry’s ability to respond to FOS.”

The figures follow the release earlier this year of the Code Governance Committee General Insurance Industry Data Report for 2015/16, which showed a 32% jump in dispute levels.

Withdrawn claims grew 29% and declined claims were up 14%, with the combined total representing about 11% of lodged claims, the code report showed. Little information was provided on drivers of the increases, but outcomes ultimately affect matters that come to FOS.

“I think the industry needs to explain in more detail the reasons for this dramatic increase in withdrawn claims and dramatic increase in declined claims,” Mr Price says.

FOS notes increased claims and heightened consumer awareness and expectations, such as on turnaround times and repair quality, are likely contributors to the rising number of disputes.

“These matters are with the industry to resolve, but we are working with insurers to improve their procedures,” Mr Price says.

“We have seen some improvement in response times in the latter part of the year.”

The latest report shows 31% of accepted insurance disputes involved motor vehicle comprehensive cover, 28% centred on home building policies and 9% travel insurance. Disputes were mainly provoked by claim amounts, denials and exclusions and conditions.

The Insurance Council of Australia (ICA) says it is concerned about the increase in disputes and is working with FOS. It says the report may not fully reflect improvements companies have made to dispute resolution processes.

“ICA and its members are committed to the role of external dispute resolution and support FOS as it transitions to the new financial services complaints authority by mid-2018,” CEO Rob Whelan said.

The insurance industry sometimes seems unfairly tarnished by wider financial sector issues, particularly adviser scandals, but it has its own battles to win confidence.

A survey published last month shows Australian consumers rank financial services as the least-trusted industry after pharmaceuticals, technology, the Federal Government and telecoms.

Within the sector, the most trusted by a considerable margin is super fund providers, followed by banks, financial advisers, mortgage providers, insurers, brokers and credit card providers.

With banks winning all the critical headlines, the wider financial services industry has so far dodged calls for a royal commission on the sector, but there’s always readiness among politicians to include insurance in fresh inquiries.

No matter what the causes of the rise in disputes heading to FOS, insurers need to ensure they are addressing the issues being raised.