Case Study - Offical Complaint Re Short Period Cancellation

I thought I would post up my own personal experience of an Official Complaint I recently made as I know fellow professional will enjoy the read / references and also for the benefit of anyone else in the same position.

Situation

I cancelled my commerical vehicle policy ten months into the policy as was advised there would be no refund as the policy had "Short Period Cancellation Rates" and any cancellation after nine months mean no refund.

(Note Short Period Cancellation Rates also mean if you cancel in the first month you will generally be charged 30%, second month 40% and third month 50% etc)

I made an "Official Complaint" and researched previous Ombudsman rulings using this link

https://www.ombudsman-decisions.org.uk/

Typing in "Cancellation" and then doing a search from 2012 to current gives literally hundreds of cases.

My complained referenced this explanation link from the Ombudsman

https://www.financial-ombudsman.org.uk/publications/ombudsman-news/54/insurance.htm

https://www.fca.org.uk/firms/unfair-contract-terms

The cases I referenced in my own complaint were

https://www.ombudsman-decisions.org.uk/viewPDF.aspx?FileID=74595

and

https://www.ombudsman-decisions.org.uk/viewPDF.aspx?FileID=60823

along with this text from decision DRN0586113




and in particular I draw your attention to decision DRN0586113 which demonstrates the Ombudsman expects a pro rata refund unless the Insurer can explain a satisfactory business reason as to why a pro rata refund is not justifiable




"I didn’t think the flat rate £50 cancellation fee was unreasonable. However I thought differently about the 35% cancellation charge. We generally think that on cancellation, insurers should charge consumers only for the time they insured them, unless there are good reasons otherwise. In Mr M’s case that would be for only about 2 months. However I thought this should be calculated with reference to the new increased premium and not the £900 Mr M originally paid.




J & M said that providing customers with pro-rata premium refunds would deplete their income to the extent that they would be unable to pay claims even after allowance was made for administrative charges. But they couldn’t give us any evidence in support of that. And so I didn’t think that their short term cancellation charge of 35% was fair or reasonable in this case given the short amount of time they insured Mr M. I thought that he should only have to pay for the time they insured him on a pro rata basis."

The result was I received a full pro rata refund of the balance of my premium less the brokers standard cancellation fee.

Basically the Ombudsman's view is that short period cancellation rates eg not offering a proportianate refund is not acceptable unless the Insurer can offer a satisfactory explanation as to why not offering such a refund has a valid business reason. The Ombudsman generally does not accept that there are a lot of claims at the start of most policies unless the Insurer provides evidence of this.

Note there will be come policies that MAY have a justifiable business reason such as collectors car policies where there large setting up costs eg processing photographs of the car and valuing it. In addition this is unlikely to apply for policies under a year or policies such as Travel Insurance etc.

Also worth noting for the professional posters on here, I noticed when reading more recent decisions that the Ombudsman has accepted cancellation administration charges of above £50 providing they were clearly outlined at the sales stage.

If you need advice as you're in a similar situation, feel free to post on here or start your own thread. There are plenty of knowledgable posters on here happy to help you

P.S Making an "Official Complaint" is free to use, your Insurer or broker are obliged to properly investigate your complaint and then report back to you. If you're not happy with the answer you can then take the matter to the Ombudsman.

When making a complaint, try to keep it polite, as concise as possible and often referencing relevant Ombudsman cases can help. Also make it clear what your preferred outcome will be

P.P.S The Insurer I dealt with (I may name them at a later date to help with google searches) will not doubt continue to publish their short period cancellation rates and applying these to future cancellations
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