Insurers and other distributors given wake up call on non-disclosure by Financial Ombudsman Service after complaints rise 60%.
By Ralph Savage
The Financial Ombudsman Service has provided insurers with clear evidence of the urgent need to update their question sets at point of sale.
The body which handles consumer and small business complaints reported a 60% rise in the number of disputes over ‘non disclosure’ in its annual review for the financial year 2012-2013.
The news was particularly pertinent this year after the FOS pointed out that new legislation in the form of the Consumer Insurances (disclosure and representations) Act, is already in place governing this practice and that distributors of insurance should be taking more careful notice.
“The number of complaints involving motor insurance continued to rise during the year – by 7% – following a 26% increase in the previous year. The proportion of motor insurance complaints we upheld in favour of the consumer – at 47% – also remained higher than in other areas. These trends continue to reflect the tougher economic times. But as we noted in last year’sannual review, they also reflect the increased number of entrenched disputes where neither side is prepared to reconsider their position or agree to informal mediation. Disappointingly, disputes over “non-disclosure” by the consumer rose by some 60% during the year. Many of these “non-disclosure” complaints could have been avoided if the insurer had asked the consumer clearer questions when they first applied for the policy. For example, we also continued to see problems where insurers asked only general questions about convictions, when they actually wanted to know specifically about any fixed penalty points. Our approach to complaints involving “non-disclosure” and misrepresentation has developed over many years – and is reflected in law in the new Consumer Insurance (Disclosure and Representation) Act 2012, which came into force on 6 April 2013. A number of “non-disclosure” complaints involved consumers who had used comparison websites that had confused them. This happened, for example, where the comparison sites had made certain assumptions about the consumer and had automatically filled in some of the information. We have talked about this with the Association of British Insurers (ABI) – as part of out work to feed our experience back to the insurance sector – and suggested where insurers might want to remove some of the ambiguity that can arise when consumers use these websites. During the year we continued to see cases where an insurer suspected that a claim was fraudulent – and made assumptions without asking the consumer for an explanation of what had happened. If the insurer had asked more questions in the first place – to help it decide whether any “non-disclosure” was innocent, inadvertent or deliberate – the dispute may never have arisen. There are often similar issues in disputes involving claims for stolen vehicles. To be able to establish that fraud has taken place there must be a very high degree of probability. This means more than just suspicion. In these cases, we check that a proper investigation has been carried out. This includes the insurer having the vehicle thoroughly examined and giving the consumer the opportunity to explain any apparent inconsistencies.”
Stephen Netherway, Head of the Insurance and Reinsurance Group at CMS Cameron McKenna, says the situation could not have been made any clearer. “The Act itself is very much based on the FOS model and its naked intention is to increase the number of claims being paid out to consumers. On a practical level however, it is certainly the right time for brokers and insurers to update amongst other things point of sale documentation, websites and telephone transcripts; clarify processes for placements, mid-term adjustments and renewals.”