Risk Advice Source of Few Complaints

Less than one in 10 disputes related to life insurance are linked to financial advice with most consumers complaining about the actions of life insurers, according to the figures released by the Financial Ombudsman Service (FOS).

The figures, which are contained in the Service’s annual report, state that FOS received 1,095 complaints related to life insurance during 2015-2016. Of these complaints, 603 related to what FOS calls income stream risk insurance and 462 complaints related to non-income stream risk insurance, with another 30 complaints yet to be determined.

Of the complaints received for income stream risk insurance, which covers income protection insurance products, denial of claim was the leading cause of complaint (29%), followed by delays in claims handling and disputes around claim amounts.

FOS said these issues fell under the broader area of Financial Services Provider (FSP) Decisions which attracted 57% of complaints in the income stream risk insurance category with services (19%), charges (7%), instructions to policy holders (6%), disclosure (5%) and advice (4%) listed as the leading areas of dispute accepted by FOS.

Commenting on these numbers, FOS said, “Common issues in income protection disputes were that FSPs gave insufficient warning before ceasing benefits, did not provide enough explanation about why benefits would cease or requested too much information of beneficiaries”.

It was also critical of life insurers at the time of a dispute, adding “FOS continues to be concerned that FSPs are relying on incorrect policy provisions and are not providing relevant documentation to FOS at the time of disputes”.

“FOS continues to be concerned that FSPs are relying on incorrect policy provisions…”

When the income stream risk insurance disputes were categorised by sales and service channel 71% came through a life insurer while only 8% were linked to a financial adviser or financial planner, with a further 5% linked to a superannuation fund trustee/adviser.

These numbers were similar in the non-income stream insurance category, which covered death, total and permanent disability or critical illness, and in which 70% of disputes related to a life insurer while 13% were related to a financial adviser or financial planner, with a further 5% linked to a superannuation fund trustee/adviser.

Once again, the bulk of complaints (47%) were linked to a decision by an FSP with denial of claim the most common cause for a dispute with term life, total and permanent disability and trauma products, while services (14%), charges (13%), disclosure (10%) and instructions (7%) and advice (7%) accounting for the basis for most disputes.

…insurance disputes only totalled around 5% of the 20,298 disputes received and accepted by FOS

Overall, insurance disputes only totalled around 5% of the 20,298 disputes received and accepted by FOS in 2015-2016, a figure which was comparable with disputes for investments and financial advice which also equalled around 5% of the total disputes received and accepted by the Service.

Credit disputes and general insurance disputes made up the bulk of disputes received by FOS with credit attracting 10,348 disputes (47%) while general insurance attracted 6,858 disputes (31%).

In the report, FOS pointed to widespread changes it made to its dispute resolution process and said that as a result of these changes the number of disputes it accepted in 2015-16 should not be directly compared with disputes accepted in previous years.