Key Possible Systemic Issues:
Some details about trends and common issues under investigation as possibly systemic during the March 2017 quarter include:
- Inadequate claims handling processes and claims procedures
- Cancellation of policies
- Policies for dealing with customers in financial difficulty
- Policy Interpretation
- Processing Errors
FOS is monitoring disputes that relate to ‘Junk Insurance’.
Definite Systemic Issues
Compliance with RG165
FOS has seen an increase in FSPs not responding to FOS throughout the IDR period once a dispute has been registered. FOS has deemed the volume of non response from some FSPs as a definite systemic issue. This has been particularly prevalent in the General Insurance industry. FOS is working with FSPs to improve the response rates. FOS has implemented a process once further opportunity to respond has been provided that where there is enough information provided by either party to form a view these disputes will move through to decision and a determination will be issued based on the information at hand.
Policies for dealing with customers in financial difficulty
The issue concerned the FSP’s processes and policies for dealing with customers who are experiencing financial difficulty. In particular, its:
- requirement that customers provide certain information before it will assess requests for hardship assistance
- practice of responding to hardship requests within the timeframes stipulated by National Credit Code (NCC)
- practice of supporting requests by its customers for the early release of superannuation
In resolution of the matter the FSP has confirmed it will not make an assessment of whether such a request is appropriate where the customer has already contacted the DHS, in breach of its hardship obligations. The FSP agrees it is inappropriate and unnecessary to continue with recovery action once it has supported an application for early release of superannuation. The FSP may resume collection activity however if the application has not been approved within a reasonable period of time.
Collection activity while dispute with FOS
FOS was concerned with the FSP’s policy and procedures for ensuring that it complies with the obligation to place recovery action on hold for its credit card debts when a dispute is lodged with FOS. The FSP confirmed a system limitation prevented the FSP from being able to place recovery action on hold unless an account is in arrears or over its limit, even if the FSP has been provided hardship notice by its customer. The FSP was reliant on manual processes to ensure that it refrains from recovery action once an account falls into arrears.
The FSP identified instances over the last two years were it had acted in error by continuing with recovery action.The FSP acknowledged that its approach is inconsistent with how it deals with other products, such as home loans and personal loans, where collection activity can be placed on hold even if the account is not in arrears or default.
The FSP identified opportunities to improve its processes and raise awareness amongst the relevant teams and committed to implement an automated solution.
Internal dispute resolution process
FOS was concerned with the final IDR letter issued by the FSP. The letter did not (1) specify that it is the final decision about the complaint, with the word ‘final’ given prominence; (2) did not provide the complete contact details for FOS; and (3) made reference to FOS having limitations on its jurisdiction and suggests that FOS may not have jurisdiction over the matter.
The FSP redrafted this pro-forma letter and made contact with the recipients of the letter to clarify their rights to lodge a dispute with FOS.
Positive outcomes from rejected systemic issues
Sometimes we investigate issues that are ultimately determined not to be systemic, but the issue may involve substantial investigation and result in a change to an FSP’s process or a comment from the relevant Lead Ombudsman about an industry practice.
In the March 2017 quarter there were twenty two issues investigated as possibly systemic but determined not to represent a systemic issue. Some positive outcomes from these investigations included:
- The FSP advised that it is reviewing its current policy wording and processes in relation to one policyholder making significant changes or cancelling a policy when the policy is held in joint or multiple names. The FSP says it recognises the concerns raised by FOS and the adverse impacts its existing policy wording and process may have on customers in certain situations.
- The FSP advised that it is currently reviewing the relevant underwriting questions asked at policy inception, to ensure that its processes are aligned and aimed at ensuring the wording of the questions continues to pass the 'reasonable person test'. The issue concerns the underwriting questions that relate to the use of the insured vehicle. The FSP does not insure vehicles used for courier work.
- The FSP advised that a new fraud awareness training module was introduced in January 2016. In addition, its customer relations teams receive six-month training in relation to fraud from its external legal providers and regular meetings occur between its customer relations managers and external legal providers regarding the quality of service provided.
- The FSP advised that it revised its requirements for proof of identity for Third Party representatives who were required to complete its new Third Party Authority (TPA) Form. This resulted in changes to the form and simplification of the identity information required from representatives acting for policyholders.
- Concerns were raised the FSP was charging legal and enforcement expenses to debtors in excess of those reasonably and properly incurred. The FSP provided its policies and procedures and complaints and that it was not aware of any other instances where it had charged enforcement costs to an incorrect account. We requested the FSP make adjustments to its policy to ensure that legal enforcement costs are passed on to the correct account.
- The issue related to the FSP's claims assessment process and specifically the application of its ‘pre-existing medical condition’ clause. As only one claim was identified as relating to this issue and the FSP came off risk for this product in Aug 15, FOS concluded that this matter was not systemic. The FSP identified and compensated the claimant who required redress.
- FSP letter to a customer indicated that the FSP could repair a vehicle regardless of the salvage value or anticipated costs of repairs, inconsistent with the relevant state regulations.
- The FSP acknowledged that the staff member’s comments in the letter are inconsistent with the regulations and the FSP's process. The FSP says that the incident was isolated to one staff member who has been retrained.
- We contacted the FSP post the FOS 2016 conference in relation to what steps it is undertaking to improve its processes to protect vulnerable customers. The FSP stated it has commenced a pilot program and introduced further training including online training for frontline staff. The FSP further outlined that it has entered into partnership with the community and implemented a financial inclusion action plan. It believes that this will increase staff awareness of potential fraud and protection of vulnerable customers. The FSP further outlined that information from FOS and ABA guidelines will now be included in its policy and procedure.
- We were concerned that the FSP may not be clearing cheques deposited via mail in regional cities in a timely manner. The FSP advised that while there was no policy in place it was general practice for a local branch to check mail and process any cheques received in the mail on a daily basis. The FSP outlined that it will remind regional staff of this obligation.
- FSP reviewed its current process in regards to account block codes and has decided to expand existing reporting on block code changes which will see it running daily reports with all accounts with a block code added or removed which will be reviewed by a QA team to ensure that all block codes applied are appropriate and that any block codes removed were correct and that any previous codes have been reapplied.
- FSP had made changes to its payment method for its credit cards (to avoid fraud), without advising its customers. FSP advised that it would be including an explanation of the new rule in the FAQs on its website from 13 January 2017.
- FSP confirmed that it does not commence enforcement proceedings to repossess a vehicle, in accordance with Section 88(5) of the National Credit Code, solely on the basis that the vehicle is unregistered and or uninsured.Nevertheless, FSP decided to extend the timeframe from 48 hours to 14 days, to permit its customers to arrange for insurance/registration where this has expired. The FSP also decided to remediate 15 instances where it had repossessed a vehicle in accordance with the NCC over the previous 5 years, by refunding any repossession costs, refund the equivalent of any instalments which would have been due by customers during the periods of repossession, bought back any debts which had been assigned, and removed any default listings made against customers.