The Financial Ombudsman Service is telling insurers to tread carefully on reviewable rate products such as critical illness to ensure they do not breach the unfair contract rules.
Principal ombudsman Tony Boorman says he has raised the issue to generate debate but the FOS has no official policy in the area and has not received any complaints.
The concerns relate to consumers not understanding that a product is reviewable. The ombudsman is thought to be concerned that UK policies are written on an age-at-entry basis, which results in pre-funding, so those who surrender early because of a rate rise will lose out and could potentially argue the contract terms are unfair.
This means insurers could need to change the way products are structured or communicated to the public.
Boorman says: “We are raising the issue to share our experiences with the industry and for the industry to think about the issue. This is consistent with our desire to avoid disputes and minimise the incidence of complaints coming through to us in the first place.”
Legal & General protection event director Ronnie Martin says: “I believe we do communicate very clearly with our consumers exactly how reviewable pricing takes place. Also, IFAs play a crucial role in explaining to customers exactly how it works.”