Application of interest

Introduction

The Australian Financial Complaints Authority (AFCA) will not impose a standard rate when making interest awards and will not have one rate for all cases. Rather, AFCA has discretion to apply a rate that best fits the circumstances.

In remedying unfairness or unreasonableness, AFCA may apply a rate that replicates what a court might do or may use a statutory rate where this exists. If AFCA decides that an insurer should pay interest to an insured person, AFCA will generally use the interest rate that applies under section 57 of the Insurance Contracts Act 1984 (Cth).

In deciding what is fair in all the circumstances, AFCA may calculate the time period over which interest should be paid, taking into account when the complaint was lodged and the extent to which the conduct of either party contributed to a delay in resolving the complaint.

Parties should always consider addressing the issue of interest in their submissions, especially when a substantial sum of money is involved. Further, parties should note that AFCA has jurisdiction to award interest in addition to its compensation caps (in accordance with D.6 of the AFCA Rules).

Awarding Interest

1. AFCA will always consider whether interest should be awarded if a preliminary assessment and/or Determination is made in favour of a complainant.
2. Interest will normally be awarded if a complainant is owed money under the insurance policy. Examples when this may occur in general insurance disputes are:

• Payment made for repairs to a motor vehicle;
• Payment made for repairs to damaged property;
• Travel expenses paid (i.e. medical expenses, cancellation costs etc.).

Interest may not be awarded if a complainant has not spent any money on the subject matter in dispute and the amount payable is based on current rates.

When a complainant has failed to reasonably progress their insurance claim, this will be considered for identifying when interest begins.

Calculating Interest

1. Interest is usually awarded from the date when the financial firm first denies the claim. However, if there is a significant delay between the date when the claim is made and the financial firm’s initial decision on the claim, a date pre-dating the first claim denial letter may be applied.
2. The rate is to be calculated in accordance with section 57 of the Insurance Contracts Act 1984 and Regulation 38 of the Insurance Contracts Regulations 2017. The table below shows the applicable interest rates.

More information

For more information on our approach to calculating interest, please refer to our approach document “The AFCA Approach to awarding interest in insurance”. All our approach documents can be found on the publications page of our website.

Interest Rates

Note:

If the interest period applied to two or more six monthly intervals, then you take the mean or average for the total period, rounded down to the nearest lower quarter of 1%.