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Secret service spooks sector

The FOS’s refusal to divulge details of a controversial decision has unsettled the industry.

You may have heard this one before – a woman finds a lump in her breast and is referred by her GP to a specialist but later on the same day meets with her IFA and takes out a critical-illness insurance policy with the application completed online by her adviser.

When asked if she has been referred to a doctor or medical specialist, she replies in the negative. Subsequently, a diagnosis of cancer is made and the claim is rejected by her insurer on grounds of material non-disclosure.

The case is taken to the Financial Ombudsman Service and it rules in favour of the woman and the claim is paid in full because the individual in question had not seen a hard copy of the policy proposal.

The Financial Ombudsman Service decides not to make its decision public but Money Marketing reveals the case to the industry.

The news of the decision sent shockwaves through the protection sector. The FOS is still refusing to divulge the full details of the case and the lack of information from FOS has hit confidence in the sector.

The transaction was conducted electronically and has put online business under scrutiny.

Financial Technology Research Centre director Ian McKenna says: “The FOS has hid behind confidentiality on this issue. Everyone is working on speculation, rumour and innuendo on this case. We know there is something wrong but the people who have created the situation will not say what, which is hugely damaging to the industry.”

IFA Defence Union director Evan Owen believes that the whole process of compliance has become a waste of time when the FOS can ultimately disregard it all.

He says: “We have an unaccountable body who will make decisions based on whatever it feels like. It is nothing to do with regulation or law, it is there simply to keep voters happy.”

But Scottish Equitable Protect head of underwriting and claims Matt Rann says he does have trust in the FOS.

Looking at the online protection market as a whole,he believes the industry is witnessing the FOS forming its views as cases come along.”All I think we are seeing is the bedding in of a new process in the industry,” he says.

Online applications present several advantages but there can be difficulty keeping up with online processing speed, especially with contracts made without ever having to put a pen to paper.

Owen believes a client should always have to sign a document to confirm they have read, understood and answered accurately. “This is a nightmare situation. I do not think that electronic submission is the way forward, it does save time but is fraught with difficulties,” he says.

Rann agrees that requiring signatures would be a good move as the customer must be given every opportunity to examine their answers.

McKenna notes that there are a number of groups tackling the online/signature issue such as Standard Life, which sends a confirmation schedule to the assured to sign and confirm that all the details on the electronic application are correct. “In that way it is not delaying the underwriting process but is ensuring it has the benefit of a hard copy signature to confirm all the appropriate details for disclosure,” he says.

Legal & General managing director of intermediary solutions Graham Newitt says that L&G uses a similar process. The firm sends out a copy after an application has been received and asks them to notify L&G of any changes or any omissions.

Newitt believes the real issues are in making it easy for the customer to give inform-ation. He says: “We need to ensure that customers understand their obligations when they enter into a contract and that is about questions asked, not the technology used.”

FOS spokeswoman Alison Hoyland says that questioning and presentation of the sales process are a primary focus when examining cases. She says: “We look at the questions, the answers given and whether or not the consumer had a chance to view the finished documentation to see if it was an accurate representation of what they were asked and what they said.”

McKenna believes an overall, definitive approach is required. He says: “We need a new process to meet the needs of the 21st Century. I believe it would be appropriate to agree at an industry level exactly what is going to form best practice.”

Newitt says L&G has consulted with the FOS on its procedures. “The ombudsman will never give cast-iron approval but the conversation has led us to believe that our methods are fair and appropriate.”

This is a service that Hoyland is keen to emphasise. She says: “Any member of the industry who wants to understand the ombudsman’s thinking on cases can contact us. People can run scenarios with us, see what our thinking is and we will explain how we would expect firms to conduct themselves.”

Advisers seeking clarification can call the Financial Ombudsman Service on 020 7964 1400 or email technical. advice@financial-ombudsman.org.uk

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