Income protection insurance issues

JamesMN

I took out an IPI policy 23 years ago when I started contract work and have happily been paying it in increasing amounts (index linked) since then. I had an accident last year that meant I couldn't work for around 9 months so I made a claim on the IPI policy after the initial 3 months per the policy schedule. After some checks on the extent of my injuries, the provider gave me a monthly payout which was less than 50% of the level of cover I was paying for based on my earning for the previous 12 months per their T&C's. The previous 12 months had been particularly lean due to the outworkings of Covid on the industry I work in but that was not accepted as a viable reason for their low assessment. However, after a bit of an investigation by the provider, they said that they thought the policy was mis-sold but, to cut a long story short, the IFA that initially sold it to me has gone out of business. The provider had referred me to the Financial Ombudsman and they agreed that the policy had been mis-sold but that since they are out of business, there's nothing further they can do.

I'm having difficulty that the policy provider can effectively outsource the risk and liability associated with mis-selling a policy and say they can't do anything for me.
I'm also surprised that the Financial Ombudsman Service says that is standard practice with insurance providers and tough luck. (They were much more polite than that, but that is the end result of their investigation)

I have taken the FOS outcome to mean that yes, there is a structural problem with the fact that providers can walk away with no liability but that's ok because it's 'standard practice'. Probably just my interpretation as I'm a bit put out by paying circa 20K into a policy over the last 23 years and not getting what I believed I was paying for. Am I being unreasonable?

To be fair to the provider, they offered to give me a partial refund of the overpaid premiums but have asked me for proof of income for the entire policy period. Because I'm a contractor I don't have a clean and easy employment record and a drawer of P60's going back 23 years to refer to. I have however got together enough information to cover all but 2 years where I was working and living abroad and have no records due to time elapsed. In fact, I'd say a lot of people would struggle to come up with detailed proof of income for 23 years, especially nowadays where very few people stay in one job for that long. Bottom line is that I don't know if I'm going to get anything out of the whole exercise and the provider have been obstructive with long delays in answering questions and getting clarifications. The 'proof of income' bar was set quite high in terms of evidence and that had to be negotiated down to something more reasonable which I have supplied. I just have no confidence that I will get anything out of the whole exercise.

So, does anyone know what other avenues of recourse I have?

I feel that really, if I had just put the money aside into an ISA or the likes, I would have at least had some money to draw on and that the IFA was just upselling me whatever he could. Now that the IFA is out of business, it appears that the FOS feels it's ok to say that I was mis-sold but there's nothing they can do.

kingstreet

The advisory firm is liable for the advice not the provider.

Check here;

https://www.fscs.org.uk/making-a-claim/failed-firms/

to see if the firm is deemed in default by the FSCS. It is is, direct your complaint to FSCS not FOS.

JamesMN

Appreciate that and will follow up with the FSCS, however I find it a bit odd that the providers can effectively outsource the risk and liability to the advisers and dodge any comeback to themselves. Meanwhile, they are taking the premiums and the adviser gets a fairly small commission by comparison. Not really equitable or fair.

The provider raised a complaint with the FOS on my behalf BTW, not me.

kingstreet

Presumably the provider didn't check to see if the FSCS had found the advisor firm in default.

As your complaint concerns the advice given to purchase the contract the provider can't be blamed if the advisor wasn't representing it. Our regulation/protection may not be perfect but at least we all know where we stand.

dunstonh

However, after a bit of an investigation by the provider, they said that they thought the policy was mis-sold but, to cut a long story short, the IFA that initially sold it to me has gone out of business. The provider had referred me to the Financial Ombudsman and they agreed that the policy had been mis-sold but that since they are out of business, there's nothing further they can do.

The FOS has no remit. So, why they referred you to the FOS is strange.

I'm having difficulty that the policy provider can effectively outsource the risk and liability associated with mis-selling a policy and say they can't do anything for me.

The provider is just the manufacturer for the product. The provider carries out no suitability checks. The retailer, the IFA in this case, carries the liability for suitability.

I have taken the FOS outcome to mean that yes, there is a structural problem with the fact that providers can walk away with no liability but that's ok because it's 'standard practice'. Probably just my interpretation as I'm a bit put out by paying circa 20K into a policy over the last 23 years and not getting what I believed I was paying for. Am I being unreasonable?

Why should the provider by liable for something that had nothing to do with them?  In that respect, you are being unreasonable.

In fact, I'd say a lot of people would struggle to come up with detailed proof of income for 23 years, especially nowadays where very few people stay in one job for that long. 

This is the risk where people choose to be lax with their record keeping.

So, does anyone know what other avenues of recourse I have?

None.  
The sale predates the regulation of insurance.   So, even if the IFA firm was still in existence, they could reject the complaint as pre-regulation (and the FOS still couldn't do anything).     For sales made from 2005, there is the FSCS protection but yours predates that.  So, you dont get FSCS protection.

I feel that really, if I had just put the money aside into an ISA or the likes, I would have at least had some money to draw on and that the IFA was just upselling me whatever he could. Now that the IFA is out of business, it appears that the FOS feels it's ok to say that I was mis-sold but there's nothing they can do.

It is unclear whether you have been missold or not.   Typically an advised income protection sale would look for evidence of income being provided at the point of sale.   This proves suitability at the point of purchase.   Indexation goes to cover for increasing income over the years.   However, if your income hasn't improved in line with indexation, then is that because of choices you made or consequences of action taken or missale?   That bit is unclear.       It is worth noting that the provider is in no position to judge whether a sale is a missale or not.  It may offer an opinion but it can be an unqualified opinion.

A sale in 2000 would be light touch compared to today. It was pre-regulation after all.  So, an adviser may have accepted the figure you gave as income without checking it.   Indeed, non-advised sales usually accept the figure the consumer gives without checking it even today.

Appreciate that and will follow up with the FSCS, 

You do not have access to the FSCS as you purchased 5 years before regulation of insurance.

however I find it a bit odd that the providers can effectively outsource the risk and liability to the advisers and dodge any comeback to themselves.

Its not odd.  Its how the retail market works.   If you go to a shop that sells items and the shop provides advice and you buy on their advice, why should the product manufacturer be held liable for actions of the shop?

The provider raised a complaint with the FOS on my behalf BTW, not me.

As the provider has made a mistake in doing that, maybe they are mistaken in other areas.

JamesMN

Thanks for your comments, some interesting information in there.

I think that trying to make a parallel between something straightforward in a shop and a relatively complex financial offering is a gross over simplification though, the products and the associated risks are really not the same at all. 

The key to your comments are in the time that I bought the product and the light touch that was applied during the meeting that I had. In reality, he didn't seem to understand the way I was working but assured me based on my description of the way it works that the figure he arrived at would be good.

TBH, both the provider and the FOS were in absolute agreement that the product was mis-sold but I think that's because they knew it would divert me down a blind alley and there is no recourse available to me.

I'm pursuing the offer from the provider of a partial refund of overpaid premiums and I'll see how far I get with that. I'll ask for whatever other means of recourse I can get because if you don't ask, you definitely won't get.

lisyloo

Im not sure how being complex (it’s not rocket science) makes a difference at all.
the advisor provided the advice on suitability.
if you bought the wrong car (which could be called a complex product) then why would it be the manufacturers fault if it didn’t suit your needs?

I do sympathise though,
you tried to do something sensible and used an advisor and through no fault of your own you’ve ended up with no protection from their failure.
It’s good that things have improved since then and that there is now a FSCS.

JamesMN

I think the big difference is that with a car, you don't sign up to a bunch of T&C's that indemnifies the manufacturer from any liability and leaves it with the dealership, unless of course you drive recklessly and wreck your car, in which case, it's obviously your fault and you insure yourself against bad things happening. If a car isn't fit for purpose, the manufacturer is liable because they made a fundamental mistake or even worse deliberately made a decision for it to not be compliant. (Eg. VAG emissions debacle)
For a financial services product to be wrapped up in so many deliberately complex T&C's that you are unlikely to get the service to believe you have been sold is akin to structural fraud. It seems to be an unfashionable expectation to buy something that you were told would protect you in the event of an accident or illness and then when you find out it doesn't, have the provider more or less say 'tough luck'. Luck has nothing to do with this, it's wilful deception. Hopefully I get a reasonable refund out of them and I'll have to be happy with that I guess and take another lesson learned.   

lisyloo

You would get the service you’d paid for if you bought or been sold a suitable product.
the issue lies in the advice/selling and you are complaining that the manufacturer can’t be held liable but they are not at fault here.

but if you are determined to see it a different way then there’s nothing anyone else can do to help you see otherwise.

the facts provided wrt your position are hopefully helpful 

Weighty1

JamesMN said:

I think the big difference is that with a car, you don't sign up to a bunch of T&C's that indemnifies the manufacturer from any liability and leaves it with the dealership, unless of course you drive recklessly and wreck your car, in which case, it's obviously your fault and you insure yourself against bad things happening. If a car isn't fit for purpose, the manufacturer is liable because they made a fundamental mistake or even worse deliberately made a decision for it to not be compliant. (Eg. VAG emissions debacle)
For a financial services product to be wrapped up in so many deliberately complex T&C's that you are unlikely to get the service to believe you have been sold is akin to structural fraud. It seems to be an unfashionable expectation to buy something that you were told would protect you in the event of an accident or illness and then when you find out it doesn't, have the provider more or less say 'tough luck'. Luck has nothing to do with this, it's wilful deception. Hopefully I get a reasonable refund out of them and I'll have to be happy with that I guess and take another lesson learned.   

The product IS doing what it says on the tin.  It provided you an income, up to the maximum allowable amount based on their limits (normally about 60% of your taxable earnings) from the deferred period until the end of the incapacity.  On that basis, it does not appear to have been missold at all and can't think why anyone would suggest it had.  Yes, the plan is not paying out the expected amount, however, by your own admission your income had dropped significantly due to Covid but ALL insurers have limits on how much you can claim as it wolud be burdensome on them to cover 100% or more of peoples earning as no one would ever want to return to work once a claim started paying. 

Did you go back to the insurer and ask them to review whether your cover amount was still within their limits or did you go back to an adviser at any point and review the cover?  If not, it's difficult to blame an adviser for something that was recommended years ago for it not exactly matching your circumstances 23-years later.  

What I would suggest is speaking to the insurer and asking them to average out your earnings over the last 3-years based on the fact that Covid was an highly unusual situation and is therefore giving them a false view of your earnings.  Alternatively, ask if they would even discount the Covid year/s completely?  They may want to see that your current earnings have returned to pre-Covid levels thereby showing with a higher degree of certainty that the reduction was an anomoly and not a downward trend in earnings, however, this may be difficult if you've not been able to work normally since the injury which caused the claim.

lisyloo

There is a legal limit (I thought it was 75%) of income due to the reason above I.e. discinclination to return to work and the fact that some symptoms e.g. Pain are entirely anecdotal.