Cash settlements of claims – an issue critically examined last week by the Hayne royal commission into financial services misconduct – is also an area of concern for the Financial Ombudsman Service (FOS), which has recorded a record rise in the number of disputes it has handled.

The disputes facility says cases involving insurers’ cash settlement decisions have become an area of concern.

Its annual report for the last financial year says general insurance complaints lodged with the service in the period rose 8% over the previous period to a record 14,252 cases.

Total disputes received from all sectors reached a new high of 43,684, up 11% from 2016/17.

Lead Ombudsman for General Insurance John Price told insuranceNEWS.com.au that FOS has “long stated to the industry that a cash settlement must be fair, reasonable and consistent with utmost good faith”.

“What we have seen in many instances is that the cash settlement offered is based purely on what it could cost the insurer to repair or replace, rather than what it would cost to place the applicant or consumer back in the position they would be in.”

Mr Price says cash settlements must also allow for contingencies that are likely to occur during the repair or rebuilding process.

The report says a key reason for the spike in complaints about financial service providers can be attributed to growing awareness of the existence of FOS and fallout from the ongoing royal commission.

In general insurance, FOS only accepted 8603 of the disputes received as more insurers looked to settle disputes with customers directly.

“Although there has been an increase in the matters received, the number of disputes accepted dropped by roughly 2%,” Mr Price told insuranceNEWS.com.au.

“That will suggest the industry is making a greater effort to resolve matters that come into FOS in the very first stage.”

General insurance accounted for 32% of all disputes accepted in 2017/18, second only to credit complaints (43%).

About 92% of the complaints accepted involved domestic insurance and more than 70% stemmed from insurers’ decisions to reject claims or claim amounts, FOS says.