Home insurance claim rejected: what to do?

izkes/Shutterstock.com

If you want to protect your home and belongings from any accidental damage or loss then you should consider taking out some home and contents insurance. But not every insurance claim is paid out, so what should you do if your home insurance claim is denied or rejected?

Key points:

If your home insurance claim has been rejected, that doesn’t mean the end of the process.
You can ask for your rejected insurance claim to be reconsidered, or lodge a complaint via your insurer’s internal dispute resolution (IDR) process.
If you’re still not happy, you can take legal action though this may end up costing you money.

How often are insurance claims denied?

Home insurance is designed to help protect you financially if whatever you have purchased cover for is to be damaged or lost. In that case, you’d lodge a claim with your insurance provider, detailing what has happened, and then wait to see if you’re covered. But how often is a claim denied?

The Insurance Council of Australia, the peak professional body for insurers, says that across the entire sector, “insurers accept around 96% of claims”.
An Australian Securities and Investment Commission (ASIC) study found that of the more than 200,000 home and contents insurance claims submitted to six insurers between January and March 2022, “76% of claims were reported as accepted or partially accepted, 8% declined, 12% withdrawn and 4% not yet subject to a decision” by the time the study closed in September of that year. The six insurers in the study cover about 60% of the market, says ASIC.
Australian Prudential Regulation Authority (APRA) figures for the 12 months to June 2023 show the home and contents insurance industry was worth about $12.5 billion dollars, and that about $8.8 billion in claims was paid out during that same period.

Just because your home insurance claim has been rejected though, doesn’t mean the end of the process. There are avenues to appeal or complain and have a denied claim reconsidered.

For example, one study found that about a quarter of denied home insurance claims led to a complaint, and in about half those cases the original decision was overturned in favour of the consumer.

We’ll look at what you can do if your home insurance claim is denied a little later, but first let’s take a closer look at why a home insurance claim may be denied in the first place.

Can my insurance company deny my claim?

Yes, your insurance company can deny your claim on your home and contents insurance for a number of reasons. The Financial Rights Legal Centre (FRLC), which provides advice and advocacy to consumers across Australia, lists four main reasons why an insurance claim may be denied. They are non-disclosure, a policy condition or exclusion clause, a cancelled policy and fraud.

Non-disclosure is where your insurance company says you failed to tell them about something that should have been disclosed when taking out the insurance policy. This could cover a number of issues but the FRLC says you must take all “reasonable care” to avoid giving any wrong information (misrepresentation) to an insurer when taking out a policy.

Examples include not telling the insurer about any prior insurance claims, how the property is to be used and any existing damage to the property.

“If you are not sure whether you need to tell the insurer about something, the safest option is to tell them,” the FRLC says. “This makes sure the policy you are paying for will cover you if something happens.”

A policy condition or exclusion clause is where an insurer says you failed to comply with a condition or exclusion clause detailed in your home and contents insurance policy.

The FRLC says examples could include a condition that you must maintain your house in good condition, have keyed locks on all windows and deadlocks on all external doors.

An exclusion could include a clause that you’re not covered for wear and tear or lack of maintenance, faulty construction/design defects, and things such as subsidence, ground movement or erosion.

It’s a good idea to check any policy before signing to see what conditions and exclusions may be listed, and whether you can negotiate some compromise to make sure you get the level of cover to suit your needs.

Your insurance may be cancelled mid-policy for a number of reasons, such as failing to pay any regular premium instalment. The FRLC says your policy may also be cancelled if you tell your insurer something that it considers makes the risk of insurance unacceptable.

You should tell your insurer of any changes (see non-disclosure, above) that may affect your home and contents insurance. The FRLC says your claim could be rejected if your insurer found out about any earlier changes that would have led to it cancelling your policy if it had known.

Fraud is a serious allegation and the FRLC says an insurer must show you intended to deceive the insurer or acted with “reckless indifference” about whether the insurer was deceived.

If the insurer proves fraud, the law centre says your insurance claim can be rejected and your policy cancelled. In serious cases, you may be referred to the police, and you may be charged with a criminal offence.

There could be other reasons why an insurance claim is rejected or denied but that doesn’t have to be the end of the matter.

What can I do if my insurance claim is denied?

There are a number of things you can do if your home insurance claim is denied, from seeking a review of the decision to taking legal action.

The first thing you should do is talk to your insurer. You should get a written explanation of why your claim was not accepted and the reason for the decision, says the Insurance Council of Australia. You should ask for any supporting evidence the insurer may have to support its decision.

Maurice Blackburn Lawyers says the important thing to remember is that an insurer’s decision is not final.

“In our experience, insurers often rely on people not fighting back when their claim is rejected,” it says. “The first thing you can do is ask the insurer to review its decision.”

If you’re still not happy with any decision to reject, refuse or deny your insurance claim, you should consider lodging the matter through your insurer’s internal dispute resolution (IDR) process. The contact details should be available from your insurer.

The FRLC recommends you keep a copy of any written correspondence you have (by email and letter), and notes of any phone calls and conversations, including the time, date and name of anyone you spoke with.

You should explain clearly why you think your claim may have been rejected unfairly, and raise any issue you think should be reconsidered as part of your claim.

The Australian Financial Complaints Authority (AFCA), an independent body that can help you with a complaint, says it can be frustrating and emotional when raising the matter with an insurer, but says it’s still important to deal with anyone in a respectful manner.

“If consumers believe their insurance claim has been wrongly denied, the first step is for them to contact their insurer and raise a formal complaint,” it told Canstar. “If their insurer does not get back to them, or they are unhappy with the response, they can lodge a complaint with AFCA.”

You can contact the AFCA on 1800 931 678 (free call).

The AFCA says it deals each year with thousands of complaints related to a denial of claim on insurance, including on home and contents policies. It told Canstar that about 70% of all complaints were resolved in favour of the claimant.

What if I’m still not happy my insurance claim was rejected?

If you’re still not happy with the response from your insurer regarding your complaint over any denied claim then you can take the matter even further and seek legal action. To do that you may want to check what free legal help may be available in your state or territory, or talk to a solicitor.

But the FRLC warns that legal action may end up costing you money.

“There is a risk that you may have to pay the other side’s costs if you lose or something goes wrong,” it says. “You may have to pay the other side’s costs even if you win your case.”

Again, if you’re not sure what to do, you might want to seek some legal advice to consider your options.

Cover image source: fizkes/Shutterstock.com

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This article was reviewed by our Deputy Editor, Canstar Amanda Horswill before it was updated, as part of our fact-checking process.

Michael Lund

Former Senior Finance Journalist

Michael is an award-winning journalist with more than three decades of experience. As a senior finance journalist at Canstar, Michael's written more than 100 articles covering superannuation, savings, wealth, life insurance and home loans. His work's been referenced by a number of other finance publications, including Yahoo Finance and The Motley Fool.

Michael's worked as a reporter and producer for the BBC and ABC, including for Australian Story. He's also worked as a feature writer for The Courier-Mail and as a science and technology editor and commissioning editor at The Conversation.

Michael's professional awards include a Queensland Media Award and a highly commended in the Walkleys. In 2021 he was part of a team that was a finalist in the Australian Museum Eureka Prize for Science Journalism. He holds a Bachelor of Science in mathematics and applied physics (Manchester Metropolitan University) and a Masters of Science in pure mathematics (Liverpool University).

You can connect with Michael on LinkedIn.

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