Insurance claims handling and settling service reforms
Since January 2022, handling or settling insurance claims is a financial service that requires an AFSL. Insurers and their claims handlers must now meet conduct standards, disclosure obligations, and dispute resolution requirements that apply to all financial services. The reforms were introduced by the Financial Sector Reform (Hayne Royal Commission Response) Act 2020. This guide covers 10 core obligations.
Coverage
Insurers (general, life, and health), claims-handling agents, loss adjusters, and third-party administrators who handle or settle insurance claims on behalf of an insurer. Individuals performing claims-handling work are typically authorised representatives of the insurer's AFSL.
Legal basis
Corporations Act 2001 (Cth), Chapter 7 as amended by the Financial Sector Reform (Hayne Royal Commission Response) Act 2020. Insurance Act 1973 (Cth) and Insurance Contracts Act 1984 (Cth) also apply. ASIC is the conduct regulator; APRA is the prudential regulator.
The obligations
Hold an AFSL authorisation for claims handling
Ensure the entity holding the AFSL has an authorisation covering "claims handling and settling services" for the relevant class of insurance products. This is a new authorisation category introduced from 1 January 2022.
Handle claims efficiently, honestly, and fairly
Apply the overarching conduct obligation — efficient, honest, and fair service — to every stage of claims handling, from lodgement through to settlement or denial.
Comply with the Insurance Code of Practice timeframes
Meet the General Insurance Code of Practice timeframes for acknowledging claims, making decisions, appointing assessors, and communicating with claimants. Key timeframes include responding to claims within 10 business days.
Provide a claims guide to claimants
Give claimants clear information about the claims process, what they need to do, expected timeframes, and their rights — including the right to complain and access external dispute resolution.
Apply the duty of utmost good faith
The insurer must act with utmost good faith in handling claims, including not relying on technical or unmeritorious reasons to deny a claim and not unreasonably delaying the process.
Manage conflicts of interest in claims handling
Identify and manage conflicts of interest — such as where claims handlers have financial incentives to minimise payouts or where external adjusters act for both the insurer and the insured.
Provide internal and external dispute resolution
Maintain an internal dispute resolution procedure for claims-related complaints and be a member of AFCA. Inform claimants of their right to escalate to AFCA if dissatisfied.
Ensure claims staff are trained and competent
Claims handlers — whether employees or authorised representatives — must be adequately trained on the relevant insurance products, the claims process, legal obligations, and consumer vulnerability.
Support customers experiencing vulnerability or hardship
Identify and respond to claimants experiencing vulnerability, financial hardship, family violence, or natural disaster impacts. Provide additional support and reasonable adjustments to the claims process.
Report breaches and significant claims-handling failures
Self-report breaches and likely breaches of the claims-handling obligations to ASIC within 30 calendar days under the reportable-situations regime, including systemic claims-handling failures.
What happens if you do not comply
Civil penalties up to $1.11 million for individuals and $11.1 million (or three times the benefit or 10% of turnover) for bodies corporate. ASIC can also issue banning orders against claims-handling personnel and take enforcement action for breach of the duty of utmost good faith.
Reporting requirements
Reportable situations within 30 calendar days. Internal dispute resolution data reported to ASIC via annual compliance reporting. Claims data reported to APRA under prudential reporting standards.
What firms should do today
- Confirm the AFSL authorisation covers claims handling and settling services
- Map claims-handling processes against the General Insurance Code of Practice
- Train all claims staff on conduct obligations, vulnerability, and hardship
- Establish claims-handling KPIs aligned with Code timeframes
- Build a complaints register that captures claims-related disputes separately
- Review outsourced claims-handling arrangements for compliance
Compliance with Quillio
Quillio helps insurers by tracking claims-handling timeframes, flagging overdue claims, and drafting compliant claimant communications. See /resources/security or start a free trial.
This guide is general information about insurance claims handling obligations — not legal or insurance advice. Always consult specialist insurance compliance advisers for your specific situation.
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