Exclusions don't always need to be explained to customers of insurance intermediaries if they are “inherently obvious” or almost always included in certain types of cover, according to an Australian Financial Complaints Authority (AFCA) document.

The AFCA Approach to insurance broker complaints sets out the list of areas that would be examined before a determination is made.

The dispute mediator says it "would be impractical and unreasonable for brokers to go through all exclusions, conditions or limitations of a policy”.

AFCA says an example of an “inherently obvious” exclusion would be damage caused by wear and tear or gradual deterioration in a typical home policy.

“Therefore, the broker would not be required to draw attention to them unless the consumer specifically disclosed a need for this cover,” AFCA said.

“In general, the financial firm must satisfy AFCA that reasonable efforts were undertaken to ascertain the consumer’s needs and specifically inform the consumer of a relevant policy exclusion or exception.

“If an exclusion impacts consumers’ disclosed or ascertained needs or the sum insured is less than required, the broker is required to properly inform the client of this. This does not mean a broker must explain all exclusions.”

Other areas that AFCA will also consider include whether a broker has appropriate practices and processes in place to canvas and record clients’ insurance needs; undertaken reasonable efforts to arrange a policy that suits a client’s needs; provided advice to ensure clients are able to make informed decisions; and established the terms of agreement between the parties.

When it comes to establishing a loss, AFCA says compensation is not guaranteed even if a broker had failed to inform a client of a relevant policy exclusion.

“AFCA must still consider whether the financial firm’s failure caused the consumer to suffer the loss being sought,” the mediator says. “This loss is assessed as the amount necessary to restore the consumer to the position they would have been in if the failure had not occurred.

“If the consumer is found to be no worse off than if the failure had not occurred, no compensation would be awarded.”

AFCA says most disputes lodged against brokers involve alleged failures to arrange for adequate coverage or to fully inform clients of the terms of policies.

Click here for the approach to insurance broker disputes.