Home insurance claim rejected: what to do?

How often are insurance claims denied?

Home and contents insurance is designed to help protect you financially in the event that your home and/or possessions are damaged or lost. In the unfortunate case that this happens, you’d need to lodge a claim with your insurance provider, detailing what has happened, and then wait to see if you’re covered by your policy. But how often is a claim denied? 

• The Insurance Council of Australia, the peak professional body for the insurance sector, states that “insurers accept around 96% of claims.”

• An Australian Securities and Investment Commission (ASIC) study found that of the more than 218,000 home and contents insurance claims submitted to six insurers in 2022, “76% of claims were reported as accepted or partially accepted, 8% declined, 12% withdrawn and 4% were not yet subject to a decision” by the time the study closed in September of that year.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, said the ASIC.

• Australian Prudential Regulation Authority (APRA) figures show that for the end of the June quarter, the insurance industry’s total assets were worth around $132.6 billion. During the same period about $68.2 billion in claims were paid out.

Just because your home insurance claim has been rejected, doesn’t mean that the process has ended. There are avenues to appeal and have a denied claim reconsidered or to make a complaint.

For example, one study found that about a quarter of denied home insurance claims led to a complaint, and nearly half of those complaints resulted in claims being overturned in the 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.

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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.

1. Non-disclosure

Non-disclosure occurs when 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.”

2. A policy condition or exclusion clause

A policy condition or exclusion clause is where an insurance provider 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. This can often be found in the Product Disclosure Statement (PDS), as well as other relevant documentation. You may be able to negotiate with your insurance provider and compromise to make sure you get the level of cover to suit your needs.

3. A cancelled policy

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.

4. Fraud

Fraud is a serious allegation and the FRLC says an insurer must show you intended to deceive them 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.

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. 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.

“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 on 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.

The Australian Financial Complaints Authority (AFCA), a home insurance ombudsman 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,” says the AFCA.

“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 free of charge on 1800 931 678.

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.

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. Before you do so you may want to check what free legal help is 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 qualified legal advice to help you consider your options.

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