The Australian Financial Complaints Authority (AFCA) says it has reported 10 general insurance systemic issues in the first half of the financial year, including around unclear wordings and not paying claims as specified in a product disclosure statement.

The second bi-annual systemic issues insights report says AFCA identified 50 systemic issues across industry sectors covered, also including 29 related to banking, 5 to superannuation, 3 to investments and advice and 3 to life insurance.

Compliance Advocacy Solutions Director Paul Muir says systemic issues are those that are likely to have an effect on one or more consumers or small businesses, as well as to a complainant.

“AFCA’s role in identifying and reporting systemic issues benefits consumers who have not lodged a complaint with AFCA but who may, nonetheless, have been impacted by a systemic issue,” he says on LinkedIn.

In one insurance case study a firm is expected to pay remediations to customers totalling more than $6.6 million due to failing to comply with its own market value definition when settling a total loss motor claim, with staff failing to include stamp duty and transfer fees for buying a replacement vehicle.

The firm had decided some years ago to change its definition to include the extra costs, and the product disclosure statement was updated, but “ineffective project governance and change management meant that the changes weren’t properly implemented into work practices”.

AFCA says the financial firm wasn’t aware of the problem until it was highlighted by the systemic issues investigation.

In another case study a firm was incorrectly handling claims made under a pet insurance policy.

“The financial firm was reading various definitions together under the policy to give a restrictive interpretation to how it dealt with claims relating to pre-existing conditions,” the report says.

“AFCA found that the insurer’s interpretation of the policy wording was unclear and most people would not be able to easily understand the way the various policy definitions interacted with each other. The policy was unclear about the cover provided and when claims would be excluded.”

The firm accepted AFCA’s interpretation of how the policy should be read and applied and agreed to undertake a review of historical claims and re-assess affected claims.

In other examples of shortcomings firms failed to give effect to AFCA decisions. In one case this was caused by a new staff member failing to follow processes, affecting several determinations.

Another firm failed to give effect to two determinations in separate cases, with the insurer citing “administrative oversight”.

“The insurer believed the two cases were isolated instances,” the report says. “AFCA determined that the matter was a systemic issue because the firm appeared to have inadequate controls and processes for implementing AFCA determinations and this had impacted more than one consumer.”

The insurer reviewed its dispute resolution processes and identified opportunities where they could be strengthened.

AFCA says in a general note that good governance and ensuring team members are clear on processes is key to avoiding issues that may impact a broader group of customers.

In a life insurance example, a firm incorrectly applied a consumer price index increase to the sum insured resulting in a higher premium. The issue was self-reported and a remediation program set up to compensate 3582 customers. Premium refunds totalled $175,170.49 and a new process was introduced.

Mr Muir says the report also highlights issues in other industry sectors that have relevance for insurers.

Those include a system outage that resulted in transactions being duplicated and unwarranted charges and fees being incurred, and a failure around recognising customers experiencing financial hardship.

In addition to the systemic issues, AFCA reported 33 other matters across the sectors including seven serious contraventions of the law, 22 refusals or failures by parties to give effect to a determination and 4 settlements that may require investigation.

AFCA makes reports to the Australian Securities and Investments Commission, the Australian Prudential Regulation Authority and other regulators such as the Australian Taxation Office and the Office of the Australian Information Commissioner.

The report is available here.