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Keep the watchdog at bay

We all have to be responsible for our actions in life. Well almost all, two related groups appear to have the ability to make irresponsible decisions without fear of being called to account. I refer, of course, to the FSA and the Financial Ombudsman Service.

Insulated as they are by the statutory immunity afforded them under
the Financial Services and Markets Act, the two combine on a regular
basis to cause havoc, mayhem and irreparable damage to what used to
be a valuable part of UK economy – the financial services industry.
Fortunately, the decisions of the FOS are at least potentially
subject to judicial review.

The latest instance adds significant fuel to those who would argue
that the FOS is entirely out of control and has lost any grasp on

I refer to its recent “unpublicised” decision relating to online
critical-illness insurance (Money Marketing, November 25). It is bad
enough that the FOS chose recently to rule that, in a case of blatant
non-disclosure, the claim must still be paid. That it then refuses to
make the basis of its decision public, only serves to undermine the
ability of insurers to deliver cheaper products to consumers using

I am tempted to suggest that, having realised the absurdity of its
own decision the FOS now wants to bury it quietly as it realise it is
publicly indefensible. It beggars belief that someone who, upon being
referred for specialist medical investigation suddenly goes and takes
out critical-illness insurance without understanding exactly what he
or she is doing.

The FOS now says that the information that is circulating on this
case does not represent the full facts of the case and that it takes
into account the sales environment, the questions asked, if all
questions were asked, the description of the policy and exclusions

If this is the case, the solution is entirely within its power. It
can issue guidance on the wider issues raised by this case so that
confidence in the market might be restored. Such action might also
restore a little market confidence in the FOS.

Perhaps predictably, the FOS chooses to hide behind the excuse of
consumer confidentiality rather than give guidance. Pressed on this
point last week, it told me that it may do so “in their own time and
in their own way”, it is hard not to see this as a further example
of their arrogance and irresponsibility.

The suggestion has been made that the FOS believes people feel
pressured when information is only presented electronically. If this
is so, what century is it living in?The implications of this decision
do not just affect the life market. With the introduction of mortgage
regulation, the FOS now extends to cover homeloans. If lenders cannot
rely on the honesty of a mortgage applicant how can the mortgage
market continue to operate? If you want to commit mortgage fraud is
the answer to apply online as the FOS could rule that you could not
be expected to correctly understand the declaration at the end of the
application form?From next month, the FOS’s jurisdiction will extend
to the general insurance market. If you have a history of accidents
and convictions and want a cheap premium is the answer to apply for
your motor insurance online as the FOS could rule that you cannot be
expected to understand the declaration that tells you to disclose
material facts?The failure of the FOS to provide clear market
guidance on this point is undermining market confidence in e-commerce
and inhibiting insurers from introducing economies that would lead to
lower premiums for consumers.

In July, the FSA consulted on the future of the relationship between
itself and the FOS, specifically stating that it was “seeking to
clarify the differing roles and responsibilities of the FSA and FOS
when “wider implications’ cases arise”.

The consultation period has ended and further clarification from the
FSA will, I understand, be published in the future. Based on this
example I would say that this should be expedited.

Who will suffer as a result of this decision? Almost certainly,
hundreds of thousands of financial consumers who will be denied, at
least temporarily, the lower levels of premiums that insurers can
only realistically achieve if they can reduce their cost base.

So, barring the FOS engaging brain before issuing rulings or better
still admitting that it was wrong, what can we do about it?The answer
has been around for some years. It lies in the declaration approach
that was developed by Origo a number of years ago to support an
electronic new business process where the client was not intended to
sign a traditional application form.

This approach, which was tested with legal counsel under both English
and Scottish law, involves the proposer being sent a “confirmation

This is a paper copy of the information that is used as the basis of
assessing the proposal. It is mailed to the proposer accompanied by a
letter confirming that the enclosed information will be the basis of
thecontract and advising them that they should contact the insurer
within a 14-day period if any of the information is not correct.

Clearly, this would protect against the FOS view that a proposer
could not be expected to understand a question on an online

In my view, it is also important that the adviser receives a copy of
this information to be retained as future protection against any
potential claim in the future.

Although a less than ideal solution, we really do need to maintain
paper as it does at least provide an alternative to having to close
down all electronic new business systems for the life, mortgage and
general insurance industries.

In a recent study carried out by my company of the online e-commerce
protection services offered by 14 leading insurers, only three
providers actually send this information to both adviser and
proposer. A further three send the information only to the client and
two only to the adviser.

If the FOS cannot be persuaded to join the rest of us in the 21st
Century, there are some common-sense steps that product providers can
take to avoid these risks but our research suggests that many life
offices have yet to learn this.


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Cricket - thumbnail

England vs Australia: pensions

Well, the cricket season is here, and England and Australia are stepping up to the wicket. Although we compete with each other in the sporting world, when it comes to pensions, Australia’s pension programme is held up as a model for our auto-enrolment initiative. Auto-enrolment was introduced because people weren’t saving enough into their pensions, and it is still early days but signs are positive. However, in Australia, saving into a pension is compulsory, and in fact employers are the ones who have to pay in. Employees in Australia can make additional contributions into their pensions, but they don’t have to. Should the onus be on the employer or employee to save? Well in the UK we think it’s both, but to get ‘adequate’ savings for retirement it’s the employee who has to pay more in.


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