A judge recently ruled in the favour of a policyholder who had her claim rejected by Friends Provident, even though the Ombudsman had supported the provider's decision. Could this mark a shift in the way claims are dealt with in the future? While this case was decided under Scottish law, could this affect the industry as a whole?
Alan Lakey, Highclere Financial Services
There is great disquiet within the financial services community regarding the Financial Ombudsman Service (FOS).
The main issues relate to the FOS working within its own rules of suitability and outside of those protections afforded by British Law.
One overwhelming concern is that, while firms are bound by an Ombudsman's decision, the complainant has the right to pursue the case through the court system. The FOS has often argued that the distinction is nebulous because consumers rarely instigate court actions. While this was once the case, we are increasingly seeing consumers taking legal action, often urged on by the ambulance-chasing brigade.
Another reason for this sea change is the bile heaped on the industry by consumer journalists' intent on promoting bad news, rather than focusing on the positive aspects.
There has been two notable cases recently - both involving Friends Provident. The second English-based case was a County Court claim and therefore, like the Scottish case, is not able to set a precedent. Nonetheless, it is likely to excite the imagination of many consumers who feel hard done by as a result of a rejected claim.
There is clearly a huge imbalance within financial services where the consumer has far greater rights than firms; this cannot be allowed to continue. What other industry has to contend with an arbitration system that allows dissatisfied complainants to seek redress via the courts but debars firms the same right? What other profession is denied a right of appeal? What other profession has to pay a fee even when the complaint is turned away by the FOS?
Richard Walsh, ABI
Insurers want to pay all valid claims on life and protection insurance. It provides peace of mind for millions of individuals and families, giving them financial security at what will be a very difficult time in their lives.
The reporting of these cases often implies that the insurer is acting in a callous, uncaring way. When claims are turned down, it is obviously distressing for people but insurers never take this course of action lightly. In practice, however, there are always going to be borderline cases - for example, on the significance of a non-disclosure.
That said, failure to meet policy terms and non-disclosure of pre-existing medical conditions form the majority of declined claims and these could often have been avoided if policyholders had better information about the product they were buying, or if it were made clearer to people precisely what they need to disclose about their own or family medical history. The ABI has introduced practical measures to tackle this, and they are already having a positive effect.
People who have cause to complain have always been able to go to court, even after the Financial Ombudsman Service (FOS) has made a decision. We have no reason to believe that there are large numbers of decisions made by the Ombudsman that are fundamentally wrong.
The real issue that this case illustrates is the vital importance of people buying the right policy for them, understanding that policy and making sure that all relevant medical information is disclosed on application. Insurers, financial advisers and consumers all have a part to play in getting this right.
Helen Morris, Scottish Equitable Protect
My initial thoughts were that the case would affect our claims handling process and the industry as a whole. However, it is not necessarily the case. There are two reasons for this: first, because the policy was issued under Scottish law and second, because many changes have taken place in the insurance industry in recent years to address non-disclosure problems, especially involving the design of application forms.
Under English law, the courts apply the 'prudent underwriting test' when looking at non-disclosure. Was the underwriter provided with all the evidence that was material to make a decision? However, under Scottish law the court also apply the 'prudent proposer test'. The court look to see if it was reasonable that the proposer did not disclose a fact because they did not think it was material to the underwriter; it was under this test that the case was lost. Although a high percentage of policies are issued under English law, the FOS currently looks at cases based on the two tests, and we will therefore be monitoring closely decisions from the FOS to see if this legal case has any impact.
Application forms are continuing to change. They now ask clear, specific questions - often only requiring yes or no answers. This removes some of the onus from the policyholder to decide whether a condition or symptom is material. Non-disclosure is an important issue, and we are looking at ways of addressing it.
Ronnie Martin, Adalta Consulting
The insurance industry has much experience of litigation around contracts of insurance, so critical illness (CI) is unlikely to escape.
Such litigation always comes at a cost, even under Scottish law. The value of CI policies coupled with the potential for an increasing number of claims following the sales bulge in the early part of this decade, when arguably underwriting was not quite as thorough as now, could result in an increase of such actions. By their nature CI claims can be very emotional, which makes them attractive as consumer press topics.
Providers' claims handling processes are subject to continuous review, so it is unlikely that one particular case will lead to changes in the way claims are dealt with.
Once again, the case highlights that when non-disclosure is at issue, reference will always be made in court to the underwriting information requested and given at application stage. It is this initial underwriting procedure that needs to change to help remove any grey areas for all concerned - whether they are customers, providers, doctors or judges.
One way to help reduce grey areas would be to request blood samples from every applicant for CI insurance cover. Whether or not the provider in this case decides to appeal a move towards this may not be too far away.
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