You’re offline. This is a read only version of the page.
Determination
Case number | 962676 |
Financial firm | Chubb Insurance Australia Limited |
Case number: 962676 7 May 2024
The complainant is the Chairperson of an Owners Corporation(OC) insured under a Strata Insurance policy with the financial firm (insurer). He brings this complaint on behalf of the OC.
The complaint relates to an 80% increase in the policy premium at renewal in May 2023.The complainant says the premium increase was without justification and in breach of the insurers duty of utmost good faith. The complainant also says the insurer mishandled his IDR complaint. The complainant seeks a reduction of the premium paid for the 2023 – 2024 period.
The insurer denies that the premium increase was made without justification, or that it has breached its obligations to the OC. It says the premium increase was in line with its underwriting guidelines and based on its discretion regarding business decisions.
No. AFCA can only consider a complaint about premium pricing in limited circumstances. The premium increase is based on ratings factors and weightings applied by the insurer.
There is no evidence to show the premium was increased incorrectly. It would be unfair to require the insurer to reduce the premium.
Yes. I am satisfied the information shows the insurer failed to respond to the complainant’s internal complaint.
I consider a payment of compensation for non-financial loss of $1000 is warranted in the circumstances.
The complainant has not established the insurer incorrectly increased the premium or breached its obligations to the OC. Therefore, it would not be fair to require the insurer to reduce the premium paid by the OC.
The information shows the insurer failed to respond to the complainant’s request for internal review of its decision. Therefore, it is fair that the insurer is required to pay the OC $1000 compensation for non-financial loss.
This determination is in substantially in favour of the insurer.
Should the complainant, on behalf of the OC, accept this determination, then within 14 days of being notified of his acceptance, the insurer is to pay $1000 to the OC.
No. AFCA can only consider a complaint about premium pricing in limited circumstances. The premium increase is based on ratings factors and weightings applied by the insurer.
There is no evidence to show the premium was increased incorrectly. It would be unfair to require the insurer to reduce the premium.
Insurers work within a competitive market and are generally at liberty to set their policy premiums in accordance with how they assess a potential risk. Therefore, AFCA can only consider a complaint in relation to premium pricing to the extent permitted by its Rules.
Rules C.1.2 a) and C.1.4 c) only allow AFCA to consider a premium complaint that concerns:
insurer, having regard to any scale or practices generally applied by that insurer or
AFCA cannot:
determine the base premium which is commercially sensitive information
While AFCA accepts the insurer is at commercial liberty to set the level of its premiums, this is not an absolute freedom. If the level has increased disproportionally, without justification, it is open for AFCA to review such an increase and to consider whether the insurer applied its calculations fairly.
However, in the absence of any error or inadequate explanation for the premium increase, AFCA cannot compel the insurer to refund or reduce the premium.
The OC made a claim via the lot owner of unit 6 in July 2020 (‘the 2020 claim’) for water damage to the bathroom of unit 6 and the ceiling of unit 3 directly below. The claim was accepted, and the insurer settled the claim for $339,339.
During the repairs there was another leak causing further damage to unit 3. The insurer agreed to cover the damage but said a second claim had to be lodged and an excess of $25,000 paid.
The OC, via the lot owner of unit 3, disputed that a second claim needed to be lodged and ultimately made a complaint to AFCA. In October 2023 AFCA determined the damage was to be assessed as part of the first claim.
Until the time of the AFCA Determination the insurer noted the claim for the additional damage to unit 3 as a separate claim on the policy’s claims history. The renewal quote was provided to the OC in March 2023, before the AFCA Determination.
The premium charged for the OC policy was as follows:
The complainant says the only explanation possible for the 80% increase of the premium charged by the insurer for the 2023 – 2024 policy period is that it incorrectly considered the existence of the open claim for the additional damage to unit 3.
The complainant says:
The insurer says it has not made any error and it has not incorrectly calculated the premium.
The insurer says the increase in the premium has been affected by factors such as:
The insurer says the premium increased largely due to the performance of the risk. It says the OC policy was an underperforming account with the OC having made a large claim in 2020, a further storm damage claim in 2022 and incurred a further loss (although ultimately not a new claim) while repairs were conducted pursuant to the 2020 claim. It says the loss ratio over its eight-year tenure of the policy was 587%, well above the target 100%.
The insurer says the changes to the premium were made in line with its underwriting guidelines. It provided an excerpt from the guidelines noting the following factors are built into the rating structure:
The insurer says it accepted the renewal in good faith to preserve its relationship with the OC’s broker despite the losses it had incurred on the policy.
The insurer also says while it was aware the OC would likely have trouble obtaining cover elsewhere due to the poor performance of the risk, at the time it offered to renew the policy it was not aware the complainant was refused cover by other insurers.
The information shows the loss ratio of the OC policy was calculated based on the total value of claims rather than number of claims.
The reserve allocated to the open claim for the additional unit 3 damage at the time the renewal was offered in 2023 was $50,000. This was in fact an underestimate as the eventual cost to the insurer was more than $80,000.
The amount paid in settlement of claims by the insurer is not in dispute and it is not in dispute that the loss ratio was well above the 100% target as set out in the insurer’s underwriting guidelines.
Despite the loss ratio not being in dispute, the complainant says the says the insurer is not justified in including the loss from the 2020 claim in the premium calculation because it could have pursued the lot owner of unit 6 personally for the claim amount. He says the cause of the damage to unit 6 and unit 3 was the unit 6 lot owner’s failure to maintain their lot and the insurer’s decision not to pursue the lot owner caused an unjustified increase in the premium.
A consideration of the handling of the 2020 claim is outside the scope of this determination. The insurer accepted the claim in good faith. I do not consider the insurer’s failure to recover the claim amount from the lot owner of unit 6, who is a beneficiary under the OC policy, is a breach of any obligation the insurer has to the OC or that it caused an unjustified increase in the premium.
I am not satisfied the insurer noting an open claim for the further damage to unit 3 at the time the renewal caused an error in the premium calculation. This is because the loss ratio was calculated on the value of claims paid, which is not in dispute, not the number of claims made.
The OC’s broker’s renewal recommendation made the following observations of the strata insurance market for 2023 – 2024:
The information from the broker supports the position that the costs of providing strata insurance had increased when the renewal quote was provided, which is a factor in the setting of premiums outlined in the PDS.
The complainant provided a renewal recommendation for cover for the period May 2023 – May 2024 from the broker showing cover was refused by three insurers due to the claims history.
The complainant says the insurer noting the additional damage to unit 3 as an open claim prevented the OC obtaining reasonably priced cover elsewhere. He says after AFCA determined the damage was to be covered under the 2020 claim the OC was able to obtain a quote of $33,565 which supports the open claim was impacting the premium.
As stated, AFCA can only consider a premium complaint that concerns the non-disclosure, misrepresentation or incorrect application of the premium by the insurer, a breach of any legal obligation or duty on the part of the insurer. AFCA cannot compare premiums between insurers, and I cannot consider the pricing of the risk by other insurers as part of this complaint.
The insurer is entitled to price in the value of the claims costs it has incurred in setting the premium. AFCA cannot consider a complaint about rating factors and weightings applied by the insurer to determine the base premium.
While I acknowledge the complainant’s concerns in relation to the percentage increase compared to previous years, I am not satisfied it shows the premium has been increased without justification.
I am satisfied the premium increase is based on ratings factors and weightings applied by the insurer. There is no persuasive evidence to show the premium was increased incorrectly.
I am not satisfied there has been a non-disclosure, misrepresentation or incorrect application of the premium by the insurer. I am not satisfied there has been a breach of any legal obligation or duty on the part of the insurer, including its duty of utmost good faith.
Considering this, and AFCA’s limited jurisdiction to deal with premium complaints, I am not satisfied, on balance, it would be fair to require the insurer to reduce the premium.
Yes. I am satisfied the information shows the insurer failed to respond to the complainant’s internal complaint.
I consider a payment of compensation for non-financial loss of $1000 is warranted in the circumstances.
Under paragraph D.3 of the AFCA Rules, we may award compensation for non-financial loss (capped at $5,400 for complaints lodged before 1 January 2024) where the insurer’s actions have caused an unusual amount of:
AFCA takes a conservative approach to awarding compensation and expect a complainant to bear a normal degree of inconvenience during a claim.
The exchanged material shows the previous Chairperson of the OC wrote to the insurer on 20 September 2022 expressing concerns about the failure of the insurer to pursue the lot owner of unit 6 for the 2020 claim.
The insurer responded to the previous Chairperson on 4 October 2022.
The complainant wrote to the insurer again on 1 December 2022 attaching the letter of 20 September 2022 asking to be contacted about the complaint which the OC wanted to be dealt with through the insurer’s internal dispute resolution (IDR) process.
By this stage a complaint had been made with AFCA regarding the additional damage to unit 3, but it did not include the matter of the insurer’s failure to exercise its right of subrogation against the individual lot owner of unit 6.
The complainant lodged this complaint to AFCA on 17 March 2023 having not received any response to his correspondence of 1 December 2022.
The insurer did not provide any response to the complainant until requested to do so by AFCA. The IDR response was eventually provided on 18 October 2023, ten months after the request from the complainant. The insurer has not provided any explanation for its failure to respond to the complainant.
While the issues in dispute in this AFCA complaint were ultimately narrowed to the premium increase for the 2023- 2024 period, I am satisfied the insurer’s unjustified delay caused an unusual amount of time taken to resolve this situation for the complainant.
I consider a payment of $1000 compensation for non-financial loss is warranted in the circumstances.
The complainant has not established that the insurer incorrectly increased the premium or breached its obligations to the OC. Therefore, it would not be fair to require the insurer to reduce the premium paid by the OC.
The information shows the insurer failed to respond to the complainant’s request for internal review of its decision. Therefore, it is fair that the insurer is required to pay the OC $1000 compensation for non-financial loss.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. We have reviewed and considered all the information the parties have provided.
While the parties have raised a number of issues in their submissions, we have restricted this determination to the issues that are relevant to the outcome.
AFCA is not a court of law. We do not have the power to take or test evidence on oath, or to require third parties to give evidence.
When we assess complaints, we consider:
We give more weight to documents created at the time the events occurred. If there are no relevant documents, we will decide what most likely occurred based on the available information.
If there are conflicting recollections and these are evenly weighted, we may find that a claim cannot be established.
