Insurer Refusing to Refund After You Cancelled? Letter of Demand (AU)

You cancelled your policy mid-term — sold the car, sold the house, switched insurers because someone offered a better deal. You expected a pro-rata refund of the unused premium. Instead, the insurer refunds you a fraction, citing “short-rate cancellation”, “administration fee”, or “minimum retained premium”. On a $2,400 policy cancelled at six months you’d expect roughly $1,200 back; you got $400.

Premium-refund disputes are everywhere and rarely fought, because individually they’re “only” a few hundred to a few thousand dollars. They’re also among the easiest to win.

The legal framework

Premium refunds are governed by the Insurance Contracts Act 1984 (Cth), particularly section 64 (refund of premium on cancellation), and the General Insurance Code of Practice. The Australian Consumer Law applies to unfair-contract-term challenges to “minimum retained premium” and short-rate clauses (sections 23–28 of the ACL). ASIC’s Treasury Laws Amendment (2020) Act extended unfair-contract-term protections to insurance contracts effective April 2021 — a major change that many insurers have not fully reflected in their cancellation practices.

Common refund reductions and where they fail

• “Short-rate cancellation.” Common in commercial policies, but for consumer policies it can be challenged as an unfair contract term unless transparently disclosed and proportionate.
• “Minimum retained premium” (often 10–25% of annual premium). Frequently challengeable as unfair under ACL sections 23–24, especially if not clearly drawn to your attention pre-contract.
• “Administration fee” ($50–$200). Must reflect actual cost; some are disproportionate to the work involved.
• “Commission has been earned and is non-refundable.” The ICA provides for refund on a fair basis; commission isn’t carved out automatically.
• “You agreed to the cancellation terms.” Doesn’t override unfair-contract-term rules under the ACL.

What the document does

A Letter of Demand sets out the policy, the cancellation date, the premium paid, the refund received, the pro-rata refund you say is owed, the legal basis (section 64 of the ICA, ACL sections 23–28, the Code), and a deadline (typically 14 days). It formally puts the insurer on AFCA notice.

What Claim Done delivers

Five-minute wizard. Enter the policy details, what you paid, what you got back, when you cancelled. Our Programmatic Algorithms draft the Letter of Demand citing the ICA section 64, the relevant ACL provisions, and the AFCA jurisdiction. Flat $49 fee, draft ready in about five minutes for you to read and approve.

What to expect after sending

If denied, lodge with AFCA — free, binding, and AFCA has consistently sided with consumers on disproportionate cancellation fees. The dispute is straightforward and fast at the AFCA level.