Why Your Insurance Claim Got Declined - And What to Do Next

Getting a claim declined is one of the most frustrating experiences in business. You’ve been paying premiums, something’s gone wrong, and the insurer says no.

At Tank Insurance, part of our job is preventing declines - by making sure your policy covers what you actually need and your claims are lodged correctly. But we also help clients who come to us after a claim has been declined by another insurer or broker. Here’s why claims get declined and what you can do about it.

We covered the existing guide on what happens when a claim gets denied and how to meet your duty of disclosure. This post goes deeper into the common reasons and your options.

The most common reasons claims are declined

1. Policy exclusions

This is the #1 reason. The event you’re claiming for is specifically excluded under your policy wording.

Common exclusion traps:

• Flood excluded on a property policy - many property policies exclude flood or have it as an optional add-on. If you didn’t add it and your property floods, the claim is declined
• Professional services not covered - a PL policy doesn’t cover professional advice errors. You need PI for that
• Specific activities excluded - your policy might cover your business generally but exclude a specific activity you were doing when the incident occurred
• Wear and tear - insurance covers sudden and accidental events, not gradual deterioration

The fix: read your policy wording before you need to claim. Or better yet, have your broker review the exclusions when the policy is set up and at each renewal.

We covered this in detail in our guide on cheap insurance exclusions that void claims.

2. Non-disclosure

For business insurance, the Insurance Contracts Act 1984 (section 21) requires you to disclose anything you know to be relevant to the insurer’s decision, or anything a reasonable person would know to be relevant. If you didn’t disclose something material - like a previous claim, a change in your business, or a known risk - the insurer can decline the claim.

Common non-disclosure issues:

• Not disclosing prior claims or incidents
• Not telling the insurer about a change in business activities
• Underestimating revenue or employee numbers
• Not disclosing a known defect or issue with the property

The duty of disclosure applies at policy inception AND at each renewal. If your business has changed since the last renewal and you didn’t tell the insurer, a claim related to that change could be declined.

3. Late notification

Most policies require you to notify the insurer as soon as reasonably practicable after an incident. Some specify a timeframe - within 30 days, for example. If you wait months before reporting, the insurer may argue that the delay prejudiced their ability to investigate or mitigate the claim.

This is particularly important for PI (professional indemnity) claims, which are claims-made policies. The claim must be notified during the policy period. If you become aware of a potential claim and don’t notify until after the policy expires, the new policy may not cover it and the old one has lapsed.

4. Maintenance failures

Insurers expect you to maintain your property, equipment, and assets in reasonable condition. If a claim arises from something that should have been maintained but wasn’t, the insurer may decline on the basis that the loss was preventable.

Examples:

• A roof leak that was known about but never fixed, leading to major water damage
• Electrical fire caused by wiring that should have been replaced
• Equipment failure due to lack of servicing

5. Underinsurance

While underinsurance doesn’t cause a claim to be declined outright, the average clause can reduce your payout so significantly that it feels like a decline. If your sum insured is substantially below the actual value, you’ll receive a proportionally reduced payout.

We covered this in our underinsurance guide.

What to do if your claim is declined

Step 1: Understand the reason

The insurer must give you a written reason for declining your claim. Read it carefully. Understand exactly which policy provision, exclusion, or condition they’re relying on.

Step 2: Review the policy wording

Check whether the insurer’s interpretation of the policy wording is correct. Sometimes insurers apply exclusions more broadly than the wording supports, or they misunderstand the circumstances of the claim.

Step 3: Internal dispute resolution (IDR)

Every insurer has an IDR process. You can formally dispute the decision by requesting an internal review. This escalates the matter to a senior claims team or complaints department.

Provide any additional evidence or context that supports your claim. Sometimes a decline is based on incomplete information, and providing more detail changes the outcome.

Step 4: External dispute resolution - AFCA

If the IDR doesn’t resolve the issue, you can escalate to the Australian Financial Complaints Authority (AFCA). AFCA is a free, independent dispute resolution service for financial services complaints.

AFCA can review the insurer’s decision and make a binding determination. They handle complaints about claim denials, delays, and underpayments.

Step 5: Legal advice

For high-value claims or complex disputes, legal advice may be warranted. An insurance lawyer can review the policy wording, the insurer’s reasons for decline, and advise on your prospects.

The broker advantage

If you have a broker, they’re your first call. A broker:

• Reviews the decline reason against the policy wording
• Challenges the insurer if the decline is questionable
• Provides additional information or context to support the claim
• Escalates through IDR and AFCA processes on your behalf
• Has a relationship with the insurer that can facilitate resolution

This advocacy is one of the most valuable things a broker provides - and it’s the service that matters most when things go wrong.

How to prevent claims from being declined

Prevention is better than dispute resolution. Here’s how to reduce the risk of a decline:

1. Choose the right policy - make sure your policy actually covers the risks you face. A broker reviews the wording, not just the price
2. Full disclosure matters - being upfront and complete when answering proposal questions is the safest approach. When in doubt, it’s better to disclose than not
3. Early notification helps - reporting incidents to your broker or insurer as soon as possible reduces the risk of complications
4. Ongoing maintenance matters - keeping records of maintenance work supports claims if something goes wrong
5. Understanding your policy - having your broker explain the key exclusions and conditions - reduces the risk of surprises at claim time
6. Renewals are a good time - to update insurers on any changes to the business

Frequently Asked Questions

What are the most common reasons insurance claims get declined?

Policy exclusions, non-disclosure, late notification, maintenance failures, and pre-existing damage. Many could be avoided with proper policy selection and disclosure.

Can I challenge a declined insurance claim?

Yes. Use the insurer’s internal dispute resolution, escalate to AFCA if needed, or seek legal advice. A broker can advocate throughout this process.

How long do I have to lodge an insurance claim?

Notify as soon as practicable after an incident. Some policies specify timeframes. For PI claims (claims-made), notification must be during the policy period.

The bottom line

Most declined claims come back to one of these issues: the wrong policy, incomplete disclosure, or late notification. The good news is they’re all preventable with the right setup from day one.

If you want to make sure your insurance actually pays out when you need it, having the right policy and the right broker makes all the difference.

Call us on 02 9000 1155 or email [email protected].

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This is general information only and doesn’t take your specific situation into account. You should consider whether this information is appropriate for your circumstances, read the relevant Product Disclosure Statement (PDS), and get advice tailored to your needs before making decisions about insurance products.