The publication of a parliamentary bill could do away with a law that punishes insurance claimants for honest mistakes

An archaic law that means thousands of insurance claims each year are unfairly rejected by insurers could be overturned following the imminent publication of a parliamentary bill.

Claims made on motor, travel, household and health policies are routinely turned down by some insurance companies under an anomaly in the law, which dates back to 1906 and puts a "duty of disclosure" on the policyholder.

This means policyholders are expected to disclose not only things they have been asked for, such as known medical conditions, but also things that they haven't which could later turn out to be significant. So, someone who is diagnosed with throat cancer, for example, could see their health insurance claim rejected if they had failed to mention a past visit to the doctor for a sore throat when they applied for the policy – even when the doctor prescribed nothing more than a few days' rest, and the question was not asked by the insurer.

Claims are also turned down when householders accidentally get information wrong. A common example is when applying for household insurance, where the question "Are the locks British 'safety-standard', a five-lever mortice lock conforming to BS3621, or a cylinder rim deadlock?" is commonly asked. Not surprisingly – especially since a householder would often need to take the lock out of the door to find out – it is often answered wrongly. Yet, if a householder claims on their policy, even for something unrelated to locks, such as a fire, they could find their claim rejected.

Consumer groups, health charities and many insurance companies have long called for a change to the law, saying that it is unclear and unfair.

"At the moment, the obligation is on you, the consumer, to disclose all the facts that might have an effect – decisive or not – on the mind of a prudent underwriter in assessing the risk," says Peter Tyldesley, a lecturer at the University of Manchester and insurance law specialist. "This is setting consumers up to fail."

After years of consultation on the issue, on 15 December the Law Commission will present a draft bill to parliament that should spell the beginning of the end to these often disastrous discrepancies in the law.

The Observer understands that the bill will propose the law is changed to abolish the duty of disclosure – volunteering information without being asked – to providing only the information asked for by insurers. It will also propose changes to the way insurance companies deal with policyholders when they get something wrong. So, for example, if a policyholder makes an innocent mistake, they will have their claim paid in full and if they are "careless", rather than reckless, they should get a proportionate payout. If, for example, they have only paid half the premium which would have been charged had the underwriter known the true facts, they may receive a payout of only half the amount of their loss.

"The issues of non-disclosure and misrepresentation have been running for many years," says Tamara Goriely of the Law Commission. "We think the law needs to be changed so that it is clear, accessible and easy to understand."

At the moment, around 1,000 insurance cases a year involving non-disclosure end up with the Financial Ombudsman Service, which often then rules in a policyholder's favour. The vast majority of these claims are for large amounts of money, says the Law Commission, often involving people going through a particularly vulnerable time such as dealing with a cancer or MS diagnosis.

"We've always had a broader view of disclosure than the courts," says an FOS spokesman. "If the insurer hasn't been specific enough in its questions, for example, we might rule in the consumer's favour."

Marketing consultant Inga McVicar had to turn to the FOS in 2007 when she was diagnosed with ovarian cancer but found herself unable to claim on her critical illness insurance policy. Her insurance company turned down her claim over a discrepancy in her answers on the initial form, which was due to an error by her financial adviser.

As soon as she realised the error, says McVicar, 33, she told her insurer but it treated the policy as if it had never existed. "What shocked me more was the horrific way my insurance company dealt with me over it," she says. "They branded me a liar, failed to return my calls and, to add insult to injury, in a letter to me referred to my diagnosis as breast cancer not ovarian cancer."

By February 2008, McVicar had to return to work as she is self-employed, despite the fact she was undergoing chemotherapy. "To add to this, the anomaly in my policy the insurer was referring to didn't remotely relate to my diagnosis and it turns out even if I had answered that one question correctly I would have been covered, albeit with increased premiums," she says.

Macmillan Cancer Support provided Inga with a grant to help with her basic needs while she took her case to the Financial Ombudsman Service. The ombudsman ruled in her favour, agreeing that it was a genuine mistake. She got a payout of £46,000 and is now in remission from the cancer.

Many insurers do not apply the letter of the law, taking a more reasonable approach to claims. However, a minority do apply it rigorously.

A spokesman for the Association of British Insurers, said: "We don't believe there is any need for intervention as far as non-disclosure is concerned. Where there are areas of concern, we believe these have been addressed. We have introduced a code of practice for critical illness insurance and the number of complaints has reduced significantly."

However, progress has not been made in other areas, says Goriely. "In household, motor and travel, particularly where the claim relates to a medical condition, there is no evidence that [disputes over non-disclosure] have dropped off."

"We think it's ridiculous that consumer insurance is based on an archaic law from 1906," says Phil Jones, public affairs officer at Which?

"The Law Commission report is an excellent opportunity to address this issue so we urge all political parties to support the bill."

■ Have you had a claim refused for non-disclosure, and did you resolve the issue? Would you support a change in the law? Email us at cash@observer.co.uk or write to us at Cash, The Observer, Kings Place, 90 York Way, London, N1 9GU.

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The publication of a parliamentary bill could do away with a law that punishes insurance claimants for honest mistakes

An archaic law that means thousands of insurance claims each year are unfairly rejected by insurers could be overturned following the imminent publication of a parliamentary bill.

Claims made on motor, travel, household and health policies are routinely turned down by some insurance companies under an anomaly in the law, which dates back to 1906 and puts a “duty of disclosure” on the policyholder.

This means policyholders are expected to disclose not only things they have been asked for, such as known medical conditions, but also things that they haven’t which could later turn out to be significant. So, someone who is diagnosed with throat cancer, for example, could see their health insurance claim rejected if they had failed to mention a past visit to the doctor for a sore throat when they applied for the policy – even when the doctor prescribed nothing more than a few days’ rest, and the question was not asked by the insurer.

Claims are also turned down when householders accidentally get information wrong. A common example is when applying for household insurance, where the question “Are the locks British ’safety-standard’, a five-lever mortice lock conforming to BS3621, or a cylinder rim deadlock?” is commonly asked. Not surprisingly – especially since a householder would often need to take the lock out of the door to find out – it is often answered wrongly. Yet, if a householder claims on their policy, even for something unrelated to locks, such as a fire, they could find their claim rejected.

Consumer groups, health charities and many insurance companies have long called for a change to the law, saying that it is unclear and unfair.

“At the moment, the obligation is on you, the consumer, to disclose all the facts that might have an effect – decisive or not – on the mind of a prudent underwriter in assessing the risk,” says Peter Tyldesley, a lecturer at the University of Manchester and insurance law specialist. “This is setting consumers up to fail.”

After years of consultation on the issue, on 15 December the Law Commission will present a draft bill to parliament that should spell the beginning of the end to these often disastrous discrepancies in the law.

The Observer understands that the bill will propose the law is changed to abolish the duty of disclosure – volunteering information without being asked – to providing only the information asked for by insurers. It will also propose changes to the way insurance companies deal with policyholders when they get something wrong. So, for example, if a policyholder makes an innocent mistake, they will have their claim paid in full and if they are “careless”, rather than reckless, they should get a proportionate payout. If, for example, they have only paid half the premium which would have been charged had the underwriter known the true facts, they may receive a payout of only half the amount of their loss.

“The issues of non-disclosure and misrepresentation have been running for many years,” says Tamara Goriely of the Law Commission. “We think the law needs to be changed so that it is clear, accessible and easy to understand.”

At the moment, around 1,000 insurance cases a year involving non-disclosure end up with the Financial Ombudsman Service, which often then rules in a policyholder’s favour. The vast majority of these claims are for large amounts of money, says the Law Commission, often involving people going through a particularly vulnerable time such as dealing with a cancer or MS diagnosis.

“We’ve always had a broader view of disclosure than the courts,” says an FOS spokesman. “If the insurer hasn’t been specific enough in its questions, for example, we might rule in the consumer’s favour.”

Marketing consultant Inga McVicar had to turn to the FOS in 2007 when she was diagnosed with ovarian cancer but found herself unable to claim on her critical illness insurance policy. Her insurance company turned down her claim over a discrepancy in her answers on the initial form, which was due to an error by her financial adviser.

As soon as she realised the error, says McVicar, 33, she told her insurer but it treated the policy as if it had never existed. “What shocked me more was the horrific way my insurance company dealt with me over it,” she says. “They branded me a liar, failed to return my calls and, to add insult to injury, in a letter to me referred to my diagnosis as breast cancer not ovarian cancer.”

By February 2008, McVicar had to return to work as she is self-employed, despite the fact she was undergoing chemotherapy. “To add to this, the anomaly in my policy the insurer was referring to didn’t remotely relate to my diagnosis and it turns out even if I had answered that one question correctly I would have been covered, albeit with increased premiums,” she says.

Macmillan Cancer Support provided Inga with a grant to help with her basic needs while she took her case to the Financial Ombudsman Service. The ombudsman ruled in her favour, agreeing that it was a genuine mistake. She got a payout of £46,000 and is now in remission from the cancer.

Many insurers do not apply the letter of the law, taking a more reasonable approach to claims. However, a minority do apply it rigorously.

A spokesman for the Association of British Insurers, said: “We don’t believe there is any need for intervention as far as non-disclosure is concerned. Where there are areas of concern, we believe these have been addressed. We have introduced a code of practice for critical illness insurance and the number of complaints has reduced significantly.”

However, progress has not been made in other areas, says Goriely. “In household, motor and travel, particularly where the claim relates to a medical condition, there is no evidence that [disputes over non-disclosure] have dropped off.”

“We think it’s ridiculous that consumer insurance is based on an archaic law from 1906,” says Phil Jones, public affairs officer at Which?

“The Law Commission report is an excellent opportunity to address this issue so we urge all political parties to support the bill.”

■ Have you had a claim refused for non-disclosure, and did you resolve the issue? Would you support a change in the law? Email us at cash@observer.co.uk or write to us at Cash, The Observer, Kings Place, 90 York Way, London, N1 9GU.

]]> http://www.writeot.com/unfair-insurance-law-may-be-overturned.html/feed 0 http://www.writeot.com/protect-the-vulnerable-from-mis-selling.html http://www.writeot.com/protect-the-vulnerable-from-mis-selling.html#comments Sat, 21 Nov 2009 00:06:35 +0000 iwellbc http://www.guardian.co.uk/money/2009/nov/21/protect-vulnerable-insurance-mis-selling

Sat Link Services sold my elderly mother insurance for satellite TV she didn't even have

In May, my 89-year-old mother was persuaded by a cold-calling telephone adviser from Sat Link Services Limited of Bognor Regis to take out an annual £60 insurance policy for satellite TV equipment that she doesn't even have. I have tried complaining and cancelled my mother's debit card but she has still paid £60. JE, Sheffield

You tell me your mother suffers from memory lapses and general confusion, and this is a nasty case of the ruthless exploitation of a vulnerable person.

My colleagues at West Sussex Trading Standards tell me Sat Link Services Limited (there is a proposal to strike it off from Companies House) sold insurance on behalf of Satellite Direct UK Limited, now in liquidation.

Enforcement action is being taken but this will not get your mother's £60 back.

The lesson is to remind the elderly about scams like this and consider setting up transaction limits on sole signatory bank accounts. It may seem like a modest sum but it could be a lot worse for others if precautions are not taken.

Answering your letters this week is Steve Playle, Trading Standards officer and team leader at Surrey Trading Standards Service.

We welcome letters but regret we cannot answer individually. Email: capital.letters@guardian.co.uk. Please include a daytime phone number.

]]>

Sat Link Services sold my elderly mother insurance for satellite TV she didn’t even have

In May, my 89-year-old mother was persuaded by a cold-calling telephone adviser from Sat Link Services Limited of Bognor Regis to take out an annual £60 insurance policy for satellite TV equipment that she doesn’t even have. I have tried complaining and cancelled my mother’s debit card but she has still paid £60. JE, Sheffield

You tell me your mother suffers from memory lapses and general confusion, and this is a nasty case of the ruthless exploitation of a vulnerable person.

My colleagues at West Sussex Trading Standards tell me Sat Link Services Limited (there is a proposal to strike it off from Companies House) sold insurance on behalf of Satellite Direct UK Limited, now in liquidation.

Enforcement action is being taken but this will not get your mother’s £60 back.

The lesson is to remind the elderly about scams like this and consider setting up transaction limits on sole signatory bank accounts. It may seem like a modest sum but it could be a lot worse for others if precautions are not taken.

Answering your letters this week is Steve Playle, Trading Standards officer and team leader at Surrey Trading Standards Service.

We welcome letters but regret we cannot answer individually. Email: capital.letters@guardian.co.uk. Please include a daytime phone number.

]]> http://www.writeot.com/protect-the-vulnerable-from-mis-selling.html/feed 0 http://www.writeot.com/equitable-life-exposes-ombudsmans-limitations.html http://www.writeot.com/equitable-life-exposes-ombudsmans-limitations.html#comments Wed, 18 Nov 2009 14:26:38 +0000 iwellbc http://www.guardian.co.uk/money/blog/2009/nov/16/equitable-life-ombudsman-limitations

The ombudsman's recommendations on compensation for victims of the insurer's collapse are being snuffed out

On 5 November 1605, Guy Fawkes intended to blow up parliament. He failed, but on 5 November 2009, the similarly bearded Labour MP Paul Flynn declared Fawkes' work was successfully completed. Any idea that parliament was supreme in this land was "a quaint old-fashioned view", he told the parliamentary ombudsman, Ann Abraham.

The issue under discussion was Equitable Life, and the arcane constitutional point is rather important to the million or so former investors still awaiting compensation from the government for the insurer's collapse. It also raises the issue: what is the point of the ombudsman if the government can ignore her recommendations?

Abraham said in her report in July last year that the investors should be compensated by the government; the courts have said they should be compensated by the government; parliamentary committees have said they should be compensated by the government; 337 MPs (that's more than half) have signed a motion saying they should be compensated by the government.

Meanwhile, the government has ummed and ahed and said, "Well, certainly some should get something but let's wait and see, shall we?"

The meeting of the commons public administration select committee on 5 November highlights the problem. Abraham was asked whether ombudsmen's recommendations should be binding on the government. She had, after all, made a series of recommendations in her report that found maladministration by the government's regulatory authorities, and said the government should fund a compensation scheme for all those who lost out, and get an independent assessment of who should receive money and how much.

Instead, the government decided compensation should be limited. It appointed Sir John Chadwick as its very own independent adviser to sort it out. He says he will follow the ombudsman's approach, but will take into account "the extent to which the government has accepted her findings", which is not to a very great extent at all. He has put his views out to consultation.

Eventually, last month an early day motion was drafted by MPs in order to get parliamentary discussion of the report. This called for acceptance of the report's recommendations on compensation and is the motion more than half the Commons signed, including 160 Labour MPs. On the day, however, nearly 90 of those Labour votes went walkabout, finding themselves in the government's No lobby. So the Noes had it, 294 to 269, and the motion fell.

As a result, according to Abraham, "the government was able to act as judge and jury in its own court", hence "people saw no visible distinction between parliament and government".

The reason why this matters to people other than Equitable Life investors is that the ombudsman was set up by parliament (not government) to report to parliament (not government) as a means of holding government and its officers to account. It allows ordinary people to gain redress – not just findings of guilt and apologies but actual monetary compensation – where government agencies are guilty of maladministration. It keeps matters out of courts, where class actions are extremely complex and extremely expensive.

But if the government can ignore the findings of the ombudsman – treat them as simply someone's opinion, not as findings with the force of law – then the system isn't working. Why would the public look to the ombudsman whose reports are thorough and time consuming, if there is a risk nothing will come of them?

]]>

The ombudsman’s recommendations on compensation for victims of the insurer’s collapse are being snuffed out

On 5 November 1605, Guy Fawkes intended to blow up parliament. He failed, but on 5 November 2009, the similarly bearded Labour MP Paul Flynn declared Fawkes’ work was successfully completed. Any idea that parliament was supreme in this land was “a quaint old-fashioned view”, he told the parliamentary ombudsman, Ann Abraham.

The issue under discussion was Equitable Life, and the arcane constitutional point is rather important to the million or so former investors still awaiting compensation from the government for the insurer’s collapse. It also raises the issue: what is the point of the ombudsman if the government can ignore her recommendations?

Abraham said in her report in July last year that the investors should be compensated by the government; the courts have said they should be compensated by the government; parliamentary committees have said they should be compensated by the government; 337 MPs (that’s more than half) have signed a motion saying they should be compensated by the government.

Meanwhile, the government has ummed and ahed and said, “Well, certainly some should get something but let’s wait and see, shall we?”

The meeting of the commons public administration select committee on 5 November highlights the problem. Abraham was asked whether ombudsmen’s recommendations should be binding on the government. She had, after all, made a series of recommendations in her report that found maladministration by the government’s regulatory authorities, and said the government should fund a compensation scheme for all those who lost out, and get an independent assessment of who should receive money and how much.

Instead, the government decided compensation should be limited. It appointed Sir John Chadwick as its very own independent adviser to sort it out. He says he will follow the ombudsman’s approach, but will take into account “the extent to which the government has accepted her findings”, which is not to a very great extent at all. He has put his views out to consultation.

Eventually, last month an early day motion was drafted by MPs in order to get parliamentary discussion of the report. This called for acceptance of the report’s recommendations on compensation and is the motion more than half the Commons signed, including 160 Labour MPs. On the day, however, nearly 90 of those Labour votes went walkabout, finding themselves in the government’s No lobby. So the Noes had it, 294 to 269, and the motion fell.

As a result, according to Abraham, “the government was able to act as judge and jury in its own court”, hence “people saw no visible distinction between parliament and government”.

The reason why this matters to people other than Equitable Life investors is that the ombudsman was set up by parliament (not government) to report to parliament (not government) as a means of holding government and its officers to account. It allows ordinary people to gain redress – not just findings of guilt and apologies but actual monetary compensation – where government agencies are guilty of maladministration. It keeps matters out of courts, where class actions are extremely complex and extremely expensive.

But if the government can ignore the findings of the ombudsman – treat them as simply someone’s opinion, not as findings with the force of law – then the system isn’t working. Why would the public look to the ombudsman whose reports are thorough and time consuming, if there is a risk nothing will come of them?

]]> http://www.writeot.com/equitable-life-exposes-ombudsmans-limitations.html/feed 0