The Australian Financial Complaints Authority (AFCA) is consulting on a new user-pays funding model, which it says will reduce the burden on brokers.

The new model will put more onus on larger insurance firms, with 90% of AFCA members seeing a positive or neutral impact on total cost.

Brokers have previously argued that just one complaint can lead to significant costs, even if AFCA eventually finds in the intermediary’s favour.

Under the proposed new model, firms will get five free complaints a year, meaning the vast majority of brokers will pay only their annual registration fee, currently estimated to be $376.

AFCA says about 10% of members – the very largest financial institutions, including major insurers – will face increased costs “that more accurately reflects their usage, addressing cross-subsidisation of larger firms by smaller members of the ombudsman scheme”.

AFCA, which provides its services free to consumers, has been working a new funding model for some time.

“It’s a fair, transparent and equitable model that is supported by strong data and modelling,” AFCA’s Chief Ombudsman and CEO David Locke told a webinar for members.

“We have listened to what you have told us over the past few years and this has been used to design a model that rewards good performance and early resolution, and apportions fees fairly based on use of AFCA’s services.”

National Insurance Brokers Association CEO Phil Kewin told insuranceNEWS.com.au he welcomes the proposed changes, and will have meetings with AFCA to go through them in detail.

“The new funding model appears to be more equitable to the small broker,” he said.

“Currently, when they do have a complaint, the costs can run into thousands of dollars.”

A six-week consultation period ends on April 22. The model will then be put to AFCA’s independent board in May, for a decision. Any changes would take effect from July 1.