The Australian Financial Complaints Authority (AFCA) is set to be beefed up with potentially significant ramifications for financial service providers and their insurers.
AFCA was established in November last year to consider complaints against financial service providers such as banks, insurers and financial advisers. Under its current rules, AFCA can consider complaints that are up to 6 years old and has the power to make binding directions for monetary compensation.
In response to the Hayne Royal Commission, both the Coalition and Labor have outlined a plan to expand the remit of AFCA.
Under the Coalition’s plan:
- For a 12 month period (between 1 July 2019 and 30 June 2020), AFCA will consider disputes dating back to 1 January 2008; and
- Compensation limits will remain at $500,000 for individuals, $1 million for small business and $2 million for primary producers.
If Labor wins the upcoming Federal election, it plans to:
- Adopt the Coalition’s proposal to allow complaints dating back to 1 January 2008 for a 12 month period between 1 July 2019 and 30 June 2020;
- Quadruple the current compensation limit for individuals (from $500,000 to $2 million) and double the current limit for small businesses (from $ 1 million to $2 million);
- Remove the current sub-limit of $5,000 for non-financial loss (such as humiliation resulting from a breach of privacy); and
- Allow complaints regarding previously adjudicated matters if the complainant is not happy with the earlier outcome.
The proposed changes will have important consequences for the financial services industry at large. In our view, the bipartisan position to allow a limited 12 month window for previously time barred complaints is particularly significant.
The potential frenzy of complaints between 1 July 2019 and 30 June 2020 gives rise to a level of risk that is uncertain and will be a challenge for insurers to quantify. Compounding that uncertainty is the inherent difficulty in responding to historical complaints and the fact that the expanded timeframe encapsulates the Global Financial Crisis. All of these issues have the potential to impact on financial lines policy premiums which would be a consequence felt across the industry.
The proposed changes still require ASIC approval and AFCA has announced plans to conduct a limited consultation. However, given public sentiment arising out of the Hayne Royal Commission, it remains to be seen whether the above issues are considered significant enough to warrant some refinement to the current proposals.