Insurance complaints to the Financial Ombudsman Service (FOS) are rising, even when natural disaster claims are excluded. Maybe it’s time to rethink the industry’s approach to how the disputes are handled.

It has been claimed conciliation doesn’t work for insurance disputes, but work by FOS is showing it can.

General Insurance Ombudsman John Price says conciliation is proving effective for consumers and insurers, with disputes settled quicker and insurers retaining brand loyalty because customers feel they have had a say in the process.

Mr Price recalls “a lot of resistance” to the idea of conciliation when he joined FOS three years ago, but he says insurers are now on board, having seen how well it can work.

FOS has secured a 79% success rate resolving insurance disputes through conciliation, with 100% resolution of flood-related claims.

The FOS national conference last week heard complaints to the service are rising, possibly because it is becoming better known and also because people have suffered losses in the global financial crisis and are feeling squeezed financially.

Mr Price says the rise in insurance complaints is “unsustainable”, with non-disaster cases increasing.

Insurance disputes make up about a third of all complaints to FOS. They rose 18% to 10,234 last financial year, following a 25% rise the year before.

In the year to June 30, FOS received 1141 disputes from the Queensland floods, 254 from the Victorian floods, 186 from Cyclone Yasi and 191 from the Melbourne Christmas Day hailstorm.

It resolved 69% of disaster disputes by the financial year-end, after prioritising flood cases, and will work to settle the remainder in the current year.

A growing number of disputes does nothing for the industry’s reputation. FOS and insurers have been working to identify what’s behind the rise and how to avoid reaching the point where consumers pursue external dispute resolution.

The conference heard Mr Price and other ombudsmen refer to problems with communication between consumers and their financial service providers.

Mr Price says clear engagement is crucial when disasters occur. “Many people cannot communicate to the insurer, hydrologist or assessor just what they are feeling.”

In many cases disputes began when consumers felt they were not being listened to, or did not have risks explained adequately. When FOS has investigated it has often found such complaints to be valid.

Misunderstandings undoubtedly arose from the extreme pressure placed on insurance staff following a series of catastrophes in Australia and New Zealand. Staff were not only handling a deluge of claims but many were suffering personal losses, which may have affected normal complaint-handling processes.

Mr Price says last year’s disasters highlight the importance of having a proper and efficient catastrophe response plan.

One positive result of the disasters is the insurance industry, consumer representatives and government agencies are working together more, with the standard flood definition and key facts sheets among the outcomes.

Mr Price says the insurance industry has been open and keen to work with FOS, and in the next year the service will focus on earlier resolution of disputes and resolving matters before they get to the case-management stage.

Chief Ombudsman Shane Tregillis says FOS is looking at ways to improve engagement with its stakeholders, having held a number of reviews on how it operates.

FOS has shown how the insurance industry can get faster results through conciliation, rather than waiting for a determination from the ombudsman.

An outcome that satisfies both insurer and customer has to be a winner for the industry.