Introduction

Australian insurance businesses that provide financial services to retail clients must maintain a dispute resolution system under the Corporations Act 2001 (Cth) (‘Corporations Act‘). That system includes an internal dispute resolution (IDR) procedure meeting the Australian Securities and Investments Commission’s (ASIC) enforceable requirements in Regulatory Guide 271 Internal Dispute Resolution (‘RG 271’) and membership of the Australian Financial Complaints Authority (AFCA).

These requirements affect insurers and intermediaries that handle customer complaints, including how they identify and record complaints, respond within the usual 30 calendar days, report IDR data to ASIC, and maintain complaints policies and processes. This article explains the compliance obligations, exceptions for delayed responses, external dispute resolution rights, and lessons from ASIC’s Report 802.

What Complaints Handling Obligations Apply to Insurance Businesses?

Understanding Section 912A of the Corporations Act

Under Section 912A(1)(g) of the Corporations Act, a financial services licensee providing financial services to retail clients must have a dispute resolution system. Under Section 912A(2)(a) of the Corporations Act, that system must include an IDR procedure covering complaints connected with all financial services provided under the licence.

The IDR procedure must comply with the standards and requirements made or approved by ASIC, and firms unsure how to meet those obligations can seek advice from AFSL compliance and regulatory lawyers. RG 271 contains both enforceable requirements, which are given legal effect by Section 5 of ASIC Corporations, Credit and Superannuation (Internal Dispute Resolution) Instrument 2020/98, and ASIC’s guidance on good practice. Under Section 912A(2)(c) of the Corporations Act, the dispute resolution system must also include membership of the AFCA scheme.

Distinguishing Obligations for Insurers, Brokers and Claims Handling Providers

The obligations apply to financial services licensees that provide services to retail clients, including insurance companies and insurance brokers. Each relevant licensee must:

• maintain an IDR procedure covering complaints about the financial services provided under its licence; and
• hold AFCA membership through the AFCA scheme.

Section 912A(1)(ca) of the Corporations Act also addresses representatives of a licensee. A licensee must take reasonable steps to ensure its representatives comply with financial services laws, subject to an exception for persons providing goods or services to insured persons to satisfy an insurer’s liability where those laws relate to claims handling and settling services. This distinction matters where claims handling providers act on behalf of an insurance company.

What Must an Insurance Internal Dispute Resolution Framework Include?

Identifying, Recording and Investigating Complaints Under ASIC RG 271

Under RG 271.27–RG 271.29, any expression of dissatisfaction that falls within the RG 271 definition of a complaint must enter the IDR process, even if the customer does not use the word “complaint”. ASIC also recommends that insurers take a proactive approach to identifying complaints (RG 271.30).

An insurance company must record every complaint it receives under RG 271. The complaints process should then support appropriate investigation, escalation and resolution, rather than requiring the customer to repeat the same concern to multiple staff members.

ASIC Report 802 found that insurers failed to identify one in six customer complaints, denying those customers access to the protections of the IDR framework.

Establishing Complaints Policies, Staff Responsibilities and Recordkeeping

Under RG 271.172, an insurance company must have a complaints policy that is publicly available and readily accessible, an internal procedure for managing complaints, and information about its IDR process that is available to complainants free of charge.

Insurers must also have adequate resources and give staff appropriate authority to resolve complaints (RG 271.142–RG 271.143 and RG 271.146–RG 271.147). In addition, ASIC expects staff to understand their responsibilities within the complaints process and receive suitable training (RG 271.145 and RG 271.148–RG 271.150).

Section 912A(1)(f) of the Corporations Act requires a financial services licensee to ensure its representatives are adequately trained and competent to provide the licensed financial services.

Complaint records should capture the outcome provided, when it was delivered and relevant information about the issues, products, services and remedies involved. ASIC Report 802 found that many insurers could not record when outcomes were provided, or capture more than one issue or outcome for a complaint, limiting the firm’s ability to monitor delays and identify matters affecting more than one consumer.

What Are the Timeframes for Resolving Insurance Complaints?

The General 30 Calendar Day IDR Response Requirement

Under RG 271.56, an insurer must generally provide a written IDR response within 30 calendar days of receiving a complaint. However, RG 271.71 allows certain complaints resolved or closed within five business days to be handled without a written response. Under RG 271.75, a written response is still required for complaints about declined insurance claims or claim values, or where the customer requests one. Separate exceptions for complex complaints or circumstances beyond the insurer’s control apply under RG 271.64–RG 271.66.

The written response must:

• state the final outcome;
• explain the complainant’s right to escalate the complaint to AFCA; and
• provide AFCA’s contact details.

If the insurance company rejects the complaint in full or part, the response must also address the issues raised, explain the reasons for the decision, and identify the findings and information relied upon under RG 271.53–RG 271.54 and RG 271.112.

Managing Exceptions, Delay Notifications and AFCA Escalation Rights

A complaint may fall outside the 30-calendar-day response timeframe where resolving it is complex or circumstances beyond the insurer’s control prevent resolution. Under RG 271.64–RG 271.66 and RG 271.112, the insurer must send a written delay notification explaining the reason for the delay and informing the complainant of their right to take the complaint to AFCA.

Public holidays, late allocation of a complaint, staff leave, workflow problems, or resource constraints do not, by themselves, extend the timeframe. ASIC Report 802 found that all reviewed insurers failed to provide some delay notifications within the required period, while some notifications did not explain the delay or disclose the right to external dispute resolution.

When Can Insurance Complaints Be Escalated to AFCA?

AFCA membership gives eligible customers access to an external dispute resolution process when their complaint is not resolved through the insurer’s IDR process. AFCA Limited operates the scheme on a not-for-profit basis, with an independent chair and equal representation of industry and consumer experience on its board.

Circumstances for Referring Unresolved Complaints to AFCA

A customer may take a complaint to AFCA where the insurer:

• rejects the complaint;
• does not provide an IDR response within 30 calendar days; or
• issues a delay notification.

Under RG 271, a written IDR response must explain the customer’s right to escalate the complaint to AFCA and provide AFCA’s contact details.

A delay notification must also state the reason for the delay, explain the customer’s right to external dispute resolution and provide AFCA’s details. An insurer’s complaints policy should not suggest that a customer must complete every stage of the internal complaints process before contacting AFCA.

How Can Insurance Businesses Maintain Complaints Handling Compliance?

Monitoring Complaints, Root Cause Analysis and IDR Data Reporting

Under RG 271.118–RG 271.120, insurers must identify, escalate and manage systemic issues arising from complaints, being issues that affect, or may affect, more than one consumer. ASIC also recommends that businesses regularly review complaint outcomes and examine underlying causes as part of continuous improvement (RG 271.186–RG 271.197). Complaint data can reveal recurring problems with products, services, claims handling or internal processes. Staff training, integrated systems and controls for tracking outcome implementation can help identify delays and emerging issues.

Under Section 5 of the ASIC Corporations (Internal Dispute Resolution Data Reporting) Instrument 2022/205 (Cth) (‘IDR Data Reporting Instrument’), a financial services licensee must provide ASIC with IDR information within two months after each six-month reporting period ending on 30 June or 31 December. The information must be submitted through ASIC’s Regulatory Portal in CSV format. A licensee with no reportable complaints must submit a confirmation to ASIC through the same portal.

Addressing Common Compliance Failures Identified in ASIC Report 802

ASIC’s Cause for complaint: Complaints handling in general insurance Report 802 identified failures that insurance businesses should test against their own complaints process. During ASIC’s review of 11 general insurers, businesses:

• failed to identify 1 in 6 customer complaints;
• often failed to identify systemic issues from complaints data;
• omitted required information from 1 in 8 written responses rejecting complaints; and
• failed to include required information in 1 in 5 delay notifications.

All reviewed insurers provided some delay notifications late. Insurance businesses should check whether staff identify every complaint, whether records capture each issue and outcome, and whether communications meet RG 271 requirements.

Conclusion

Insurance businesses providing financial services to retail clients must maintain an IDR system under the Corporations Act and RG 271, including AFCA membership, timely responses, accurate records and IDR data reporting. ASIC Report 802 showed that missed complaints, weak communication, delayed notifications and failures to identify systemic issues remain significant compliance concerns.

To strengthen your complaints process, contact AFSL compliance lawyers at AFSL House for assistance with IDR policies and complaints handling frameworks and AFSL compliance arrangements. Our regulatory and compliance specialists can help your insurance business assess its procedures, address gaps and support consistent handling of customer complaints.

Frequently Asked Questions

Disclaimer: All information provided in this article is strictly general in nature and is not intended to be, nor should it be relied upon as, legal advice.