What effect will the release of FOS findings have on CI? Alan Lakey investigates.
This year for the first time the Financial Ombudsman Service (FOS) has released Ombudsman Final Decision letters on its website.
Not surprisingly, attention has been drawn mainly towards the more exciting utterances and those topical matters such as Keydata and the interminable PPI.
Nonetheless, much can be gleaned by perusing those decisions relating to critical illness insurance complaints.
Certain trends appear and these provide a cautionary note for advisers working in this area. Ignoring the viewpoint of the FOS can lead only to grief and substantial redress payments.
A number of complaints relate to level-term policies being arranged to cover a decreasing mortgage. Many advisers consider this a sensible means of providing protection because, as the mortgage debt decreases, a protection surplus appears that can be used for matters other than mortgage repayment. It also means that the plan might meet future higher mortgage borrowings.
In the main, the FOS disagrees with this methodology, and in one instance, case ref: DRN6518432, it upholds a complaint against Canada Life, even though Canada Life did have a decreasing plan to offer its client. The client was a single female without dependents and Canada Life could not present evidence showing that additional cover was required.
The FOS stated: “Ms D would have been able to obtain suitable decreasing critical illness cover from an alternative provider for less than the premium Canada Life would have charged for its standalone critical illness policy”
Notwithstanding the merits of level term plans over the decreasing variety, it seems clear that cost was a major differentiator, and this presents a worrying portent that the FOS may consider these plans homogenised and is therefore unable to apportion merit to one plan over another.
Quite why an employee of an insurance company (or tied agent) has a duty to promote an alternative provider is a matter deserving of future investigation.
Another topic highlighted relates to non-disclosure and the ombudsman’s treatment of a claim which was declined as a result of this. Case ref: DRN6634045 refers to a declinature by Royal London where they subsequently became aware that the claimant had substantially understated his alcohol intake, and failed to disclose a history of asthma.
The claim was for a non-related condition – multiple sclerosis – and while requesting specific medical evidence, the claimant’s GP erroneously sent Royal London his entire medical history, Royal London rejected the claim but the ombudsman determined that Royal London had not acted in accordance with the ABI’s code on non-disclosure.
The ombudsman stated: “It seems that the only reason Royal London had for seeking such information was to try and find a reason to defeat Mr B’s claim which is a practice that this service frowns upon.”
The FOS considered that Royal London should have ignored any information not pertinent to multiple sclerosis. Oddly, the FOS also considered that Royal London could have obtained information regarding the alcohol intake through “legitimate means”. Therefore, whilst it was ordered to pay the claim it was also allowed to recalculate the premium and deduct subsequent ‘underpayments’ from the claim payment. This was then leavened by the instruction that Royal London should pay £250 compensation for “stress and inconvenience” to the claimant.
By interpreting an insurer’s claims wording, the FOS acts as a de facto claims manager, a trend which is likely to worry many within the industry. One example highlighted below indicates how the FOS’s interpretation creates an entirely different claims wording to that indicated within the policy booklet.
Case ref DRN1424712 concerns a heart attack claim rejected by the Co-operative Insurance Society (CIS). The rationale being that whilst the consulting cardiologist confirmed that a heart attack had definitely taken place, he could not precisely date the occurrence saying that it was not before 2004 and “most likely” in the summer of 2011.
CIS argued that its claim requirement clearly stipulated “new characteristic electrocardiograph changes and characteristic rise in cardiac enzymes, troponins or other biochemical markers”. The claimant responded that his consultant was satisfied that he had suffered a heart attack.
The FOS placed much emphasis on the consultant’s opinion that “It was extremely likely” that the claimant had raised cardiac markers and ECG changes although none were registered as the claimant had not sought medical advice at the time of the suspected heart attack.
It added: “While it is the claimant’s responsibility to show that he has experienced a critical illness covered by the policy terms, he has to do so only on the balance of probabilities.”
Will this view shape the design of future policies? Should the FOS be ‘designing’ the wordings of claims? No doubt readers will comment with their own views. n
Alan Lakey is director of CIExpert Ltd
At The HAC, London
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