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Secret service

The protection business has been left reeling after the Financial Ombudsman Service refused to reveal details of a critical cover case.

Product providers and networks have put IFAs on alert that they could be leaving themselves open to problems by using online proposal forms for critical-illness cover.

The warning follows a recent secretive ruling by the Financial Ombudsman Service which has not been put into the public domain.

The case, brought to Money Marketing’s attention by former IFA Brian Lentz, involved a female client, who discovered a lump in her breast and was referred by her GP to a specialist cancer unit and then saw her IFA on the afternoon of the same day.

>From that meeting, she took out a critical-illness policy, with the application completed online by the IFA. When asked if she had been referred to a doctor or other medical specialist, she said no.

A diagnosis of breast cancer was made in April and the insurer rejected her claim on grounds of material non-disclosure when a claim was made.

Even with the material non-disclosure being prima facie, the ombudsman found in favour of the consumer because she had not seen a hard copy of the policy proposal. The ombudsman said that most people find it difficult to digest information when it is only presented electronically as they feel pressured. The watchdog said the client should have been given a copy to take home.

The FOS ruled that the claim had to be paid in full but it is not releasing the case into the public domain. In addition, the ombudsman said if a policy is agreed online, it is vital that the life assured is given a paper copy to check the accuracy of the document. The ruling added that insurers should issue acceptance letters in every case.

Lentz takes issue with what he believes is a clear case of client material non-disclosure. He says: “In this case, the FOS decision was wrong but the case has wider implications – what else is the FOS deciding that nobody knows? I do not agree with the case but it has highlighted concerns.”

The fact that the ombudsman is refusing to release the details of this case is infuriating IFAs who believe it is vital that advisers and providers should understand how online applications are viewed by the ombudsman so they can iron out any problems in systems.

Tenet chief executive Simon Hudson sees this as a big risk for the industry but he believes the watchdog will be making some U-turns on these types of decisions.

He says: “It is important that everyone is working to the same rules. I cannot see that this is the beginning of a widespread epidemic of similar complaints. Most providers are looking to better utilise their online application systems and such a decision from the ombudsman could obviously a significant impediment.”

Lentz says: “This ruling effectively blows out of the water the systems of people like Legal & General.”

Legal & General has a long-standing online application facility but there is a swathe of providers looking to roll out enhanced online application systems next year and some look likely to go on risk online, which is where the concern lies.

Life Policies Direct director Jason King says the ramifications for the industry from this single case are tremendous and the FSA, ABI and FOS all need to come to the industry’s aid with recommendations and information on what advisers and providers need to do to make sure they are in line.

He is also concerned that FOS has not released any further information on the case itself. “This case is being reported in the media, yet the FOS is not explaining itself,” he says.

One IFA, who wants to remain anonymous, says this case has been known about by some protection professionals for some time and adds: “Many of us are choosing to work quietly and directly with FOS so that we can come to some type of understanding. It is sometimes dangerous to speak out against the FOS on issues like this.”

King says: “Even if you keep a record of telephone conversations, is this not enough because it is verbal? I disagree with this ruling because consumers know that life insurance policies rely on accurate understandings of the client’s health and this seems to be a case of outright lying but this is a particular case where a number of factors seemed simply to come together.”

But Bright Grey head of media Mark Locke believes this was a case that was just waiting to happen. He points out that online business is still a relatively new concept and cases like this are bound to crop up from time to time. He says: “It does not surprise me that the decision went in the client’s favour. A more sensible approach to avoid this situation is to send the client a copy of the information that the product provider has and ask them to check the answers.”

King says IFAs need to make sure that they keep their own hard copies of everything, as not all providers are capturing all the information that the FOS seems to require.

The adviser should also be encouraged to print this for the client so they have a chance to reconsider their answers and highlight anything they may have forgotten. This would avoid claims being turned down and would protect the interests of the life company and the adviser.

Locke warns: “There are some short cuts that are just not worth taking.”

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