Insurance claims worst case: what to do when your claim is rejected or taking too long

Making an insurance claim is not something done lightly, and there is a chance that without the funds or support offered from an insurer, you could face financial stress. So, what can Australians who have recently lodged an insurance claim do if you’re waiting a significant period to hear from the insurer, or your claim is rejected full stop?

Why your insurance claim is taking so long

In a 2022 ABC News article, the Financial Rights Legal Centre revealed that the general insurance industry, which includes building, home contents and motor vehicle insurance, struggles with poor data handling.

Senior policy officer Drew MacRae said: "Our research has found the data-handling practices of insurers and their central database is not up to scratch.”

"It's error-ridden, it's very difficult to access, inconvenient and unreliable. This can affect consumers' future claims and even disclosure requirements (which may mean insurers can later deny a claim),” Mr MacRae said.

This means that Australians considering making an insurance claim need to be crucial that they are crossing their t’s and dotting their i’s. This includes not only when they sign up for a policy, but when they lodge their claim as well. Some insurance policies do have time limits for making a claim, so be sure to move swiftly once an adverse event has occurred that requires lodging a claim.

What to do if your insurance claim is delayed

Unfortunately, you may find that your insurer takes several weeks, even months, to get back to you with a response to your insurance claim. In the interim, you may be left in the lurch with an undrivable car damaged from an accident, or even property damage left unrepaired.

If you feel your insurance claim is taking too long, you can consider the following:

Ask for support

While you are awaiting a payout from your insurer, assess your policy to see, or ask them directly, if you're entitled to any emergency benefits, like complimentary accommodation or car hire. This may help ease some burdens while you await response.

Internal Dispute Resolution

Pick up the phone and request to lodge a dispute regarding the delayed response to your insurance claim. This may be annoying enough to the employee handling your policy to move things along, as the General Insurer Code of Practice states they have 15 business days to respond to your dispute.

If you do not reach an agreement regarding their decision, or if your complaint has not been resolved within 45 days from raising the dispute, you can consider lodging a higher complaint with The Australian Financial Complaints Authority (AFCA) - an External Dispute Resolution (EDR) provider.

AFCA and External Dispute Resolutions

According to InsuranceLaw.org, AFCA deals with disputes with insurance companies as it relates to motor vehicle, home and contents, life insurance and travel insurance, as well as any policies in which you are a policyholder or a beneficiary. It can be a more amenable path to consider, as opposed to taking legal action, as:

• It is free for consumers,
• It is independent (despite being funded by industry), and
• A decision will (usually) be made by AFCA if the parties cannot negotiate a solution. The decision is binding on the insurer if you accept the decision. If you don’t accept the decision, you may still go to Court (subject to any time limits).

At this point, you should at least receive regular communication from the insurer, as the insurer’s internal disputes resolution team must update you at least every 10 business days.

There are some situations in which a delayed insurance claim response can occur, also referred to as exceptional circumstances, including:

• A claim relates to a catastrophe or disaster and must be declared so by the Board of the Insurance Council of Australia.
• Fraud is suspected, or involved, within the claim.
• You do not respond to requests for primary or supplementary documentation and information.

What to do if your insurance claim is rejected

You’ve lodged an insurance claim and it has unfortunately been refused. Don’t fear, according to InsuranceLaw.org, there are still options you can consider at this point:

• Internal Dispute - Again, you can consider making a formal complaint through the insurer’s Internal Dispute Resolution department.
• Make a formal complaint – Consider lodging a complaint to the General Insurance Division of the Australian Financial Complaints Authority (AFCA). Note that they will typically require you to complain to the insurer’s IDR department first.
• Take it to the tribunal -Apply to the appropriate tribunal for consumer claims for your state or territory.
• Go to court –Unfortunately, if your claim is still being rejected and you are certain that this is a poor decision, you can consider taking legal action against the insurer.

What else can you do while you battle with an insurer?

The AFCA may be able to assist Australians in more than just insurance delay resolutions and formal complaints. You may be able to apply for financial support as well, including:

Interest payments

If you did your due diligence when submitting your claim, and if you believe that your insurer has created an unreasonable delay, you can consider asking for interest to be paid for your time by the insurer. If your claim is successful, they may need to pay you interest from the date the insurer should have initially given you a response.

$5,400 for non-financial loss

Another route to consider is that the AFCA can award some eligible applicants up to $5,400 in ‘non-financial loss’. According to the AFCA, this includes ‘unusual’ amount of physical inconvenience, time taken to resolve a situation, or interference with the complainant’s expectation of enjoyment or peace of mind. 

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