Evolving Dispute Resolution in the Insurance Industry 

Donald Dinnie, Director at Norton Rose Fulbright, in conversation with Tony van Niekerk from COVER, at the AIE 2024 conference. 

I had the opportunity to sit down with Donald to discuss the current state and recent developments in dispute resolution within the insurance industry.  

As the conversation unfolded, it became clear that while the methods of resolving disputes have evolved significantly over time, the challenges they present remain as pertinent as ever. 

The conversation began with a light-hearted reference to the early days of human civilisation when disputes might have been settled with a simple “clubbing” over a disagreement. While the methods have thankfully advanced since then, the underlying need for conflict resolution remains unchanged. Today, the term “dispute resolution” is more commonly used, reflecting a shift towards more civilised and structured methods of resolving conflicts, particularly within the insurance sector. 

The Evolution of Alternative Dispute Resolution (ADR) – Donald noted that alternative dispute resolution (ADR) has been a buzzword in the industry for many years. ADR encompasses various methods like mediation and arbitration, which provide alternatives to traditional court litigation. These methods have become increasingly important in managing insurance disputes, offering more efficient and less adversarial means of resolving conflicts. 

One significant development highlighted by Donald is the role of ombud schemes in the insurance industry. These schemes have expanded their jurisdiction and authority, enabling them to address a broader range of claims. The introduction of the National Financial Ombud (NFO) in South Africa, for instance, has streamlined the process, bringing non-life insurance claims and other categories under a more unified oversight. This change has allowed the ombuds to make more significant and impactful decisions, particularly when claims have not been handled appropriately by insurers. 

With the expanded role of ombuds and the introduction of new rules, insurers face increased scrutiny and potential reputational risks. The ombud now has greater authority to make adverse findings against insurers if claims are not managed professionally or in good faith. This heightened oversight has put insurers on alert, emphasising the need for meticulous and transparent claims handling practices. 

Donald pointed out that while the ombud’s increased jurisdiction presents new challenges for insurers, it also reflects positively on the industry. Statistics show that around 70% of claims are resolved in favor of insurers, indicating that, generally, insurers take the claims process seriously and only reject claims when there is a solid basis for doing so. However, the stakes are higher now, and insurers must be diligent in their claims management to avoid adverse rulings. 

The Growing Role of ADR in Complex Insurance Claims – As the conversation progressed, we discussed the increasing use of ADR in managing complex insurance claims. Donald noted a significant rise in the number of cases being resolved through mediation, arbitration, or other forms of ADR. This trend is driven partly by the severe delays in the traditional court system, particularly in South Africa. For example, the Pretoria High Court is currently allocating trial dates as far off as 2028, making litigation an impractical option for timely resolution. 

Given these delays, ADR offers a more expedient alternative, allowing disputes to be resolved much faster than through the courts. Donald mentioned the use of “waterfall clauses” in policies, which outline a step-by-step escalation process—beginning with discussions at the senior management level, followed by mediation, and finally arbitration if necessary. This structured approach speeds up the resolution process and helps avoid the lengthy and uncertain path of litigation. 

One of the key points Donald emphasised was the importance of early evidence collection in the dispute resolution process. In complex insurance disputes, time can greatly impact the availability and reliability of evidence. Memories fade, witnesses become unavailable, and the details of events can become hazy. 

To mitigate these risks, he advised that insurers and involved parties should prioritise documenting evidence as early as possible. This includes taking witness statements and preserving any relevant documents or communications. By doing so, they can ensure that accurate and reliable evidence is available if the dispute escalates to arbitration or court proceedings. 

It became clear that the landscape of dispute resolution in the insurance industry is evolving rapidly. While traditional litigation remains a key component, the growing reliance on ADR methods like mediation and arbitration reflects a broader shift towards efficiency and practicality. Insurers are increasingly recognising the need to adapt to these changes, both in terms of managing risks and ensuring that their processes are robust enough to withstand scrutiny from ombuds and other regulatory bodies. 

Donald’s insights provided valuable food for thought, particularly for compliance professionals and others involved in the insurance industry. As the sector continues to evolve, staying ahead of these trends will be crucial for effectively managing disputes and maintaining trust in the insurance process. 

In conclusion, while we have come a long way from the primitive methods of conflict resolution, the insurance industry’s approach to managing disputes continues to develop. The focus now is on finding quicker, more efficient ways to resolve conflicts, ensuring that all parties can move forward with confidence and clarity.