What to Do When Your Insurance Claim Is Denied in Australia

If your insurance claim is denied in Australia, you can challenge it by requesting a written explanation, lodging an Internal Dispute Resolution (IDR) complaint with your insurer, and escalating to the Australian Financial Complaints Authority (AFCA) if they don't reverse the decision. The process is free, you don't need a lawyer, and AFCA resolves most disputes within 3 to 6 months.

Key takeaways

• A denied claim is not final. You have the right to challenge it through Internal Dispute Resolution (IDR) and then AFCA.
• Your insurer must give you a written explanation citing the specific policy clause they relied on.
• Section 54 of the Insurance Contracts Act limits insurers from refusing claims based on policy breaches that did not cause the loss.
• AFCA is free for consumers and can make binding decisions on insurers, for disputes where the amount claimed does not exceed $1,263,000.
• You generally have two years from the insurer's final IDR response to lodge with AFCA.

Getting a letter from your insurer telling you your claim has been denied is one of the most frustrating experiences an Australian consumer can face. You've paid your premiums for years, something has gone wrong, and the one time you need your insurance to work, the answer is no.

But a denial is not the end of the road. In fact, research from the Australian Financial Complaints Authority suggests that roughly half of all insurance disputes that reach the internal dispute stage result in a different outcome for the consumer. That means your insurer's first answer may not be their final one, if you know how to respond.

This guide walks you through exactly what to do when your insurance claim is denied in Australia, step by step.

Step 1: Read the denial letter carefully

Before you do anything else, read the denial letter from start to finish. Your insurer is required to explain why your claim has been denied and to reference the specific section of your policy they are relying on. This is not optional for them. Under the General Insurance Code of Practice, they must give you clear reasons.

Pay attention to the exact wording. Insurers commonly deny claims based on exclusion clauses, policy conditions they say were not met, or arguments that the event falls outside the scope of cover. Understanding their specific reason is the foundation of any dispute. If the letter is vague or does not cite a policy clause, that itself may be grounds to challenge the decision.

Step 2: Get a copy of your Product Disclosure Statement

Your Product Disclosure Statement, or PDS, is the document that sets out exactly what your policy covers and what it excludes. If you do not have a copy, your insurer must provide one on request. Most insurers also have current and past versions available on their website.

The PDS that matters is the one that was in force when you took out or last renewed your policy, not the current version on the website. If the insurer has updated their terms since your renewal date, the older version applies to your claim. This distinction matters more often than people realise.

Step 3: Understand your rights under the Insurance Contracts Act 1984

The Insurance Contracts Act 1984 is the federal legislation that governs insurance contracts in Australia. It gives consumers several important protections that override whatever the insurer has written in their policy document.

For example, Section 54 of the Act limits an insurer's ability to refuse a claim based on something the policyholder did or failed to do after the policy was entered into, unless the insurer can show it was prejudiced by that act or omission. This is one of the most commonly relevant provisions in disputed claims and is frequently misapplied by insurers.

Section 13 imposes a duty of utmost good faith on both parties. If your insurer has not acted in good faith in handling your claim, assessing the damage, or communicating their decision, this provision is relevant.

Section 37 deals with notification requirements and prevents an insurer from denying a claim solely because you notified them late, unless the delay actually prejudiced their position.

You do not need to be a lawyer to reference these provisions. You simply need to know which ones apply to your situation.

Step 4: Lodge an internal dispute with your insurer

Every insurer in Australia is required to have an Internal Dispute Resolution, or IDR, process. When you lodge an internal dispute, your claim is reviewed again, usually by a different person or team than the one who made the original decision. This is not a formality. It is the stage where a significant number of denied claims are overturned.

Your dispute letter should be specific. It should identify the denial reason the insurer gave, explain why you believe it is wrong, and reference the relevant sections of your PDS and the Insurance Contracts Act. A vague letter saying you disagree is not enough. A structured letter that addresses their reasoning point by point is far more effective.

The insurer must respond to your internal dispute within 30 calendar days. If they do not, you can escalate directly to AFCA.

Step 5: Escalate to AFCA if the insurer holds firm

The Australian Financial Complaints Authority, or AFCA, is the external dispute resolution scheme for financial services in Australia. If your insurer denies your internal dispute, or fails to respond within 30 days, you can lodge a complaint with AFCA at no cost to you.

AFCA is free for consumers. The insurer pays the cost of the process regardless of the outcome. AFCA can make binding decisions on insurers for general insurance disputes where the amount claimed does not exceed $1,263,000, and its decisions are enforceable.

To lodge a complaint, you need your denial letter, your internal dispute outcome, and any supporting documents. AFCA will contact your insurer and attempt to resolve the matter through conciliation before making a determination.

Be aware that AFCA has time limits. You generally need to lodge within two years of receiving the insurer's final response. Do not wait.

Common reasons insurers deny claims, and how to respond

Exclusion clauses are the most common basis for denial. The insurer points to a specific exclusion in the PDS and says the event falls within it. Check whether the exclusion is worded broadly or narrowly. AFCA has found in many cases that insurers apply exclusions too broadly, particularly for storm damage, water damage, and accidental damage claims.

Pre-existing damage is another frequent reason. The insurer argues the damage existed before the insured event. If you can provide evidence that the damage was caused by the event, such as photographs, tradesperson reports, or weather data, this argument can often be countered.

Failure to maintain the property is used particularly in home insurance claims. The insurer says you did not maintain your property adequately and the damage resulted from wear and tear rather than a sudden event. Section 54 of the Insurance Contracts Act is often relevant here, as the insurer must show that the lack of maintenance actually caused or contributed to the loss.

Non-disclosure is when the insurer says you failed to disclose something material when you took out the policy. Under the Insurance Contracts Act, the insurer's remedy depends on whether the non-disclosure was fraudulent and whether they would have offered different terms had they known. This is a complex area where consumers often have stronger rights than they realise.

When to get help

You can handle many insurance disputes yourself if you understand the process and have the right documents. However, some situations benefit from professional support. If your claim involves a large sum, complex medical evidence, or a limitation period that is about to expire, getting advice early is important.

For claims where you need help preparing the dispute letter or AFCA submission but do not need a lawyer, a document preparation service can provide the structure and legal grounding your response needs without the cost of legal representation.

The most important thing is not to give up. A denied claim is a decision made by one person at an insurance company. It is not a legal ruling. You have the right to challenge it, and the process to do so exists for exactly this reason.

If you are ready to formally challenge your denial, our guide to writing a dispute letter covers what to include and how to structure it. If your insurer has already rejected your dispute, learn how to lodge an AFCA complaint as your next step.