My complaint to the FOS about life insurance

Nic-nacs

Hi Everyone!

I've a few questions, but I'll explain my situations 1st:

We moved home and took out a joint life insurance policy in 2005, to cover our mortgage. The financial adviser was tied to 1 insurer.
In March 2010 we were contacted by the FA, to see if they could save us some money. My partner took the call, in the years prior to this, but after taking out the 1st policy, she had been suffering from quite severe anxiety/depression.
She was also getting made redundant so decided it would be wise to take out a single life insurance policy to replace her death in service benefit. Unfortunately she was too proud a person to declare her recent medical info on the application forms. She replaced the joint policy but didn't take out the sole policy. Unfortunately she passed away in July 2010, and the insurer refused to pay out due to non-disclosure of her medical history. I put in a complaint and was told the same, and contacted the FOS.
The FOS came to the same conclusion, but pointed out that I could put in a complaint about the sale. As the insurance was sold by a tied agent, then the complaint remained with the insurer. So in Feb of this year, I was contacted by the ajudicator, and was told complaint upheld! The policy had been mis-sold, as it had been churned, and the insurer should pay out on the 1st policy. After a few more arguments the ajudicator still came to the same conclusion. The insurer disagreed and so it was passed on for a final decision with an ombudsman.

So my questions are, if anyone can help?!!:
How likely is it that the decision is changed?
I had a letter dated 15th June, saying most cases passed to an ombudsman are resolved within 3 months, how much longer will I have to wait?
The claim in for over £100,000, how likely is it that the insurer will pay out the full amount?

Thanks in advance for any replies :-)

weighty1_2

Hi Nic-nacs,

Sorry to hear about your loss, it must have been, and probably still is, a dreadful time.

Thankfully, I've never had to deal with a complaint, however, based on what you have said I would be surprised if there is a positive outcome. (I'm sorry that this will not be what you want to hear). Ultimately, the plan has not not paid out due to an error on the part of the adviser or the provider but because of the non-disclosure. Everyone knows that if you omit things on a life insurance form you risk it not paying out. If the depression/anxiety was severe then this may well have stopped the provider offering cover in the first place and therefore they would be well within their rights to decline a claim altogether. If it was not that severe they may decide on a partial payout but that would be dependent upon the medical information.

Whilst I can see the churning element, 5-years is quite a long time, and your mortgage (if on a repayment basis) would have come down both in relation to the term of the plan and the outstanding amount. In addition to this standard premiums had been getting lower and lower over this period therefore if the adviser was able to save you money there was a benefit to you in changing plan. The fact that you also looked at a single life plan indicates that it wasn't churning just for the sake of churning. I cannot see that the insurer or agent has done much wrong in this instance.

Best wishes

Nic-nacs

Thanks for your reply! I am how ever hoping that you're not right :rotfl:
The points that the adjudicator has raised are:
the 1st policy was adequate for our needs, so didn't need replacing
The new policy was only slighty cheaper, infact the new insurance policy didn't cover the mortgage it was about £3000 under
Overall they wouldn't be reducing our costs, because they advised us to take out another policy, which increased our costs
There is no evidence to suggest they informed her of the implications of cancelling the 1st policy

It was the adjudicator who spotted the mis-selling so I'm hoping she's right

clear_blu

I disagree Weighty1 surely the first (joint) policy was in force and but for the phone call from the FA would have paid out. There does not appear to be any non-disclosure on the first policy so that is a red herring.

dunstonh

First of all, sorry for your loss.

How likely is it that the decision is changed?

In theory it shouldnt make any difference. If your partner didnt tell the insurer then its fair to assume she didnt tell the adviser either. So the outcome shouldnt be any different.

However, tied sales reps usually have more restrictive rules that prevent them from recommending cancellation of an existing plan. An IFA is required to give best advice and can recommend cancelling willy nilly (as long as there is justification) but tied sales cannot.

Because tied sales reps tend to have those restrictions, it is not uncommon for the old policy not to be mentioned in their report and all the warnings that would go with changing policy would not be present. If that is the case, you would expect a complaint to go against the rep as risk warnings exist for a reason.

Now that is a guess. As I said, logically it would make no difference as non-disclosure is non-disclosure. For this to be upheld now by the FOS indicates an advice failing. So, I have described the most common failing with sales reps.

It is possible that the Ombudsman will overturn the decision. They dont in most cases but it does happen. I can imagine the insurer feels that there was no wrong doing as the whole thing is due to non-disclosure. If it can persuade the ombudsman that then it would work against you. I have to say that I can see why they are arguing their point. However, if the risk warnings are not present on the report the sales rep issued then they have to take responsibility for that, even if it is harsh on them.

Also, it is it fair to call it churning? Churning relates to policies being changed for no good reason other then to generate a commission. Where there is justification it is not churning. It appears there was an aim to save money but the recommendation didnt meet the need and the saving was negligible. So, it does sound like churning.

Timescale with an actual ombudsman is long. It could be 3 months but it could drag on for a year or two.

Whilst the FOS limit comes into play, you tend to find that it is not religiously followed by insurance companies where the amount is not that much over. although if they feel hard done by, they may decide to do so.

Nic-nacs

The rep contacted my partner, who hadn't even considered cancelling the policy until that point.
If they hadn't have rung her there is no way she would have cancelled it. Maybe she felt underpressure to cancel, I can't say. As far as I can tell, the adjudicator is of the opinion that is was done just to gain comission and for no other reason

Nic-nacs

ooh! another point is that when the claim was first refused, the rep asked the insurer if they would pay out on the 1st policy....he thought they should!

dunstonh

Nic-nacs wrote: »

ooh! another point is that when the claim was first refused, the rep asked the insurer if they would pay out on the 1st policy....he thought they should!

rep is probably facing disciplinary action and trying to find as many ways to avoid the complaint going against them. He wouldnt want the complaint made against him.

Nic-nacs

Thanks to you all for replying, by the sounds of it, I'm going to have to wait a little longer. It's quite a complicated and unusal situation that I'm in....will update with the final outcome, hopefully in my favour

starrystarry

clear_blu wrote: »

I disagree Weighty1 surely the first (joint) policy was in force and but for the phone call from the FA would have paid out. There does not appear to be any non-disclosure on the first policy so that is a red herring.

I disagree about the non-disclosure being a red herring. If the severe anxiety/depression had been disclosed on the 2nd application, then the likelihood is that the application would either have been declined or heavily rated. In either case the OP and his partner would probably have decided to keep the original policy in force instead.

Whether the sale of the 2nd policy was churning or not, if the information about the anxiety/depression had been disclosed then in all probability the 2nd policy would never have gone ahead. They'd have kept the 1st policy and the OP would have been able to claim on that.

OP, I'm sorry you're having to go through this, it must be a difficult enough time for you without all this extra worry.

Nic-nacs

It is very difficult, as when she passed away we had a daughter aged 9, who is now 11. I'm just trying to get on with my life, it really is going on for too long. I've had another look at the demands and needs summary and it doesn't have any warnings about cancelling the 1st policy. On reading previous comments I think that the ombudsman won't change the decision, as we were ill advised, or that is what I'm praying for!