Australia’s financial complaints authority has sounded the alarm on widespread insurance failures, revealing that poor documentation, sluggish claims handling and outdated systems are continuing to hurt consumers – especially in the motor sector.
In its latest Systemic Issues Insights Report, the Australian Financial Complaints Authority (AFCA) said the insurance industry remains a major source of consumer concern, with product design flaws, unclear policy wording and poor communication leading to high complaint volumes.
AFCA conducted 86 systemic investigations and referred 50 matters to regulators, securing $3.4 million in refunds and remediation for more than 340,000 affected customers and small businesses across all financial sectors.
But the report singles out insurance – and motor insurance in particular – for ongoing failings in claims handling, product disclosure, and communication.
AFCA cited cases where policy exclusions were misapplied, repair investigations delayed, and consumers left in unsafe conditions after severe weather events. In one case, thousands of customers faced long waits or unclear information when vehicles were contaminated by floodwater or mould, with poor escalation processes compounding distress.
Another investigation found some insurers relying on ambiguous product disclosure statements, leaving customers uncertain about what was covered when they most needed their vehicles repaired or replaced. Outdated clauses – including exclusions for drivers who left the scene of an accident even when not at fault – led to unfair denials, forcing some firms into costly remediation programs.
AFCA said many of these problems stem from legacy systems and inconsistent governance, where sound policies on paper failed in practice. It urged insurers to modernise technology, embed fairness in decision-making, and treat complaints as early warning signs of systemic weakness rather than isolated disputes.
“Claims handling reflects the fulfilment of the insurer’s promise,” AFCA noted.
“Delays, unclear exclusions or inconsistent decisions can cause serious consumer harm and undermine trust.”
While AFCA acknowledged some insurers have strengthened processes and rewritten outdated policies, it warned that persistent weaknesses in motor claims, communication and data integrity continue to damage consumer confidence – and remain a major focus for regulators.