December 2008 - Dispute Resolution a Complex Issue
A major issue for the general insurance industry is the amalgamation of the various financial services industry external dispute resolution processes under the umbrella of one body, the Financial Ombudsman Service (FOS).
FOS, previously known as the Insurance Ombudsman's Service and, originally, Insurance Enquiries & Complaints, is now the sole external dispute resolution authority. However, the change of name is merely incidental. What is far more important is its new role and the power or influence the new body will have over day-to-day operations of the various branches of the financial services industry.
The insurance industry has a major stake in the new model and will play a significant role in shaping and influencing the model. What will it look like? It is too early to say, but much is happening to influence the ultimate outcome.
There were two key issue papers prepared, both seeking industry and other stakeholder input. The first was produced by ASIC and widely circulated. The consultation paper encouraged a response from the industry on the new Australian Standard for complaints handling, embodied in ISO10002. The discussion embraced the nature and format of internal and external disputes resolution models.
Central to the discussion was the general insurance industry's position that one EDR model does not necessarily fit all requirements for all stakeholders.
It appears a widely held view in the industry that the EDR process for banks and the life and superannuation arms may not be ideally suited to general insurance where the nature and frequency of disputes may be markedly different from those that arise in the banking sector, for example.
It seems a commonly held view that general insurers do not wish to be subject to a scheme that enables a customer or third party claimant to bypass the IDR process and directly access FOS. A consistent theme in general insurer submissions was the desire to retain initial control over the early stages of complaints and dispute resolution.
Form, Structure Uncertain
There is a range of issues to be discussed relating to the form and structure of the new scheme. Issues of cost, speed of resolution and rights of appeal or review are all matters for consideration and will be canvassed in detail over the next 12 months.
Prominent features that will attract attention will be insurers' rights in complex claims, test case rights, issues involving allegations of fraud, jurisdictional or monetary limits, and non-insured's' rights of access to the scheme.
Concurrent with the ASIC paper was a discussion paper prepared by consultants to FOS. The August paper deals with the terms of reference for the new scheme. again, a key issue for consideration was whether one set of TORs could or should apply to all branches of the FOS dispute resolution model.
The paper was widely distributed to interested parties, consumer and industry alike, and attracted a great deals of interest and a wide range of submissions. It is, again, a case of balancing conflicting interests.
Understandably, consumer bodies require TORs that give consumers the broadest possible access to the scheme, with high monetary limits, an all-embracing scope, and a scheme that is quick, free and provides non-appealable outcomes, binding on the insurer but not the claimant. In reality, this is already what is in place.
The competing interest for insurers is to balance consumer expectations against issues critical to the industry - cost, consistency and expeditious but sound outcomes, dictated by the correct application of the law and policy coverage.
From an insurer's perspective, the old scheme (better described as the current scheme), on balance, works very effectively. However, change is inevitable. The challenge for the industry is to work with all interested parties, particularly the regulatory authority, to produce a model that satisfies all competing interests. The task could prove challenging for those vested with responsibility for designing the new scheme.
The aim is to produce an IDR and EDR model that, when finalised, represents world's best practice. It is a significant aspiration and I believe we can be justifiably pleased with the various models we currently have.
Whether that aspiration can be achieved in a single model could prove far more challenging. Time will tell.