Empowering the Australian Financial Complaints Authority (AFCA) to investigate legacy disputes may have serious ramifications for insurers who provide financial services-related covers such as professional indemnity.

Treasurer Josh Frydenberg announced in February that the dispute resolution body will deal with legacy complaints going back to January 2008. The extension will come into effect on July 1.

Under the current rules, AFCA can only consider misconduct cases that were lodged a maximum six years previously, or two years if the complaint has been through a company’s internal dispute resolution process.

But the extended time period means AFCA will be required to deal with legacy cases that were not been taken up at all by its predecessor, the Financial Ombudsman Service (FOS).

Barry.Nilsson Lawyers Associate Kingsley Grimshaw told insuranceNEWS.com.au today that if the changes have their desired effect, “AFCA will see a surge in the number of claims it receives from July 1 this year”.

“A compounding issue for insurers is the fact that the additional claims are likely to relate to matters that occurred a long time ago. Such matters are inherently more difficult and costly to respond to.

“An increase in claims will likely mean an increase in claims costs. Therefore, it is certainly plausible that the changes will apply some pressure to financial lines premiums.”

The Insurance Council of Australia did not make a submission to the consultation over the proposed change. But other financial services bodies did, including the Financial Planning Association (FPA), which expressed concerns professional indemnity (PI) policies may not cover its members for historical disputes.

It said the move could result in FPA members having to pay more for PI cover.

“We are concerned about whether PI policies will cover potential legacy complaints. If the cover does not extend to legacy complaints under the conditions set in the proposed rules change… this will have a significant impact on the ability of licensees to pay any determinations made by AFCA in relation to legacy complaints,” the FPA submission says.

“Initial feedback from the insurance industry indicates that PI cover may be more expensive in the future should there be an increase in claims arising in relation to legacy complaints.”

An AFCA spokesman told insuranceNEWS.com.au today the new rules apply to disputes that have not been dealt with by predecessor schemes, courts or tribunals.

“AFCA may consider a legacy complaint that has previously been excluded by a predecessor scheme because it lacked jurisdiction, because in such cases there has been no consideration of the merits of the complaint.

“However, if a predecessor scheme has dealt with the merits of a complaint, we cannot consider or deal with it.”