Alan Lakey: Staying on the right side of the FOS

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Many advisers are concerned about offering critical illness cover to their clients as it is deemed a minefield where each insurer offers a different plan with different conditions and, often, different claim wordings.

The fear is that the area is complex and a simple error could result in a claim and interaction with the Financial Ombudsman Service. For this reason, it is sensible to consider those areas where the FOS receives complaints and how it deals with them.

A year or so back the ombudsman issued guidance on how it assesses and adjudicates complaints concerning critical illness insurance. It advised four prime reasons for complaints:

  1. Whether the product was “fairly and accurately described in marketing materials”
  2. How the insurer has assessed a claim
  3. Alleged non-disclosure
  4. Maladministration

A search through the Ombudsman Database indicates one other regular complaint: that the consumer was told critical illness cover was a requirement as opposed to an option.

The guide conveniently reminds readers that, ordinarily, the FOS can only look at advice given after 14 January 2005, when it first included protection within its remit.

The FOS advises that when a complainant states their condition is not covered (when presumably they believe it should be) they “consider the information that was available to the consumer at the time of sale”. If it then decides the complainant was not aware of the restriction or could not have been expected to know about it, it  might tell the business to pay the claim.

The FOS says it takes a “reasonable approach” to declined total permanent disability claims. Revealingly, it states “it could be we agree that a consumer is not totally disabled from performing three of six activities of daily living but we might still decide they meet the policy definition of disability because they are significantly disabled from performing all of the ADLs”.

As one might anticipate, the FOS will decide whether medical condition criteria for a valid claim were adequately explained to the consumer orally or within the documentation. I mentioned in a previous article that such intrusion is yet another instance of the FOS straying from its intended remit into the area of policy construction and design, a move which will not be welcomed by insurers, reinsurers or advisers.

Rebroking a critical illness plan is an area to be wary of. The FOS emphasises that “it is unlikely we will decide a cheaper premium alone is sufficient reason for restricting cover” and that it also considers whether the consumer was fully aware of any changes.

All of the above issues point advisers toward ensuring their clients fully understand the scope of the cover offered and also any restrictions pertaining to the plan recommended. Sensible advisers will either acquire the necessary knowledge or avail themselves of a system that assesses the differences between plans and produces a personalised compliant report.

Alan Lakey is director of CIExpert