There are many lessons learned from past complaints that financial advisers can apply to their business practices to avoid problems in the future. Insurance & Financial Services Ombudsman, Karen Stevens, explores take-away messages from case studies, tips for your clients and common risk insurance complaints…

If the industry is serious about changing conduct and culture to deliver better customer outcomes, complaints are a good place to start. Preventing future complaints is as important as resolving them. Complaints can help improve conduct and customer outcomes, as lessons from past complaints can help you and your clients avoid future issues.

Thousands of complaints received by the IFSO Scheme over 24 years help to highlight when and how things go wrong. We share complaint data and insights to give IFSO Scheme Participants the opportunity to understand the root causes of complaints, engage with customers and get it right.

Together with our training and webinar programme, the IFSO Scheme has invested in Salesforce technology to provide Participants with complaint benchmarking dashboards. The dashboards will help provide a deeper understanding about why customers are not satisfied and how to prevent complaints from arising.

Top issues: Risk insurance complaints
1. Scope of cover
2. Non-disclosure
3. Pre-existing conditions
4. Cancellation of contract or lapse
5. Mis-selling or misrepresentation.

As financial advisers, you can make a big difference by helping to educate your clients at the outset. As knowledge from complaints can greatly assist the industry, and it can empower your clients to be more confident, making informed choices in the financial sector. Many common complaints could be avoided if clients better understood the policy or contract they were signing up to.

“Many common complaints could be avoided if clients better understood the policy or contract they were signing up to.”

We encourage you to share the following complaint summaries with your clients. They cover common issues and misunderstandings. Better information and communication from the beginning would make a difference to all.

Top tips for your clients

  • Check your policy and be clear about what it does and doesn’t cover
    Encourage your clients to take the time to be fully informed and decide whether the type of policy and cover is right for them. People are often surprised, for example, to learn that trauma insurance is specific and doesn’t cover all traumatic events.
  • Check your policy exclusions and limitations 
    Declined claims due to exclusions are a common IFSO Scheme complaint. Life insurance exclusions should be understood at the outset.
  • Provide full and accurate information about your medical history 
    This is critical. Many people don’t understand the consequences of getting it wrong or leaving out information. We would encourage people to obtain a copy of their medical notes to either give to the insurer or to refer to when filling out the insurance application forms.
  • Premiums for life, trauma and income protection insurance can increase
    Increasing premiums are a common cause of confusion. Understanding the ongoing cost of life, trauma or income protection insurance at the outset is a good idea. Explain to your clients that some policies have a fixed cost, while others have stepped premiums.
  • Know the risks of changing to a new policy and insurer
    It’s important your clients understand the risks of changing insurers, particularly if medical details have changed. Many people are unaware that new insurers will take into account the full medical history of new customers up to that date, which can make a difference to cover, exclusions and premiums.

Lessons from past complaints 

No work, no life cover, non-disclosure 
Lesson for clients: Tell your insurer your full medical history, even if you don’t think some details are relevant
A year after Rose* arranged income protection, mortgage protection, and health insurance, she made a claim to her life insurer, as she was unable to work as a result of fatigue.  The insurer avoided the policies, as Rose had not disclosed medical details about depression/stress, rhinitis, sinusitis, irritable bowel syndrome, piles, rashes, lipoma, dermatitis, spine issues, fibro-adenoma, raised cholesterol, ear pain, a liver scan and raised liver function tests.
Rose said she hadn’t suffered from any of the conditions for years, they were old news. A senior independent underwriter confirmed the non-disclosure was material. The insurance cover would not have been provided on the same terms given the significant number of exclusions relating to mental health, ankles, back, neck, hip and knees.
The insurer confirmed that it would not have offered cover if Rose had disclosed her full medical history. The IFSO Scheme case manager was satisfied the non-disclosure caused the insurer to enter the contract on the terms provided.  The insurer was entitled to avoid the policies and decline to consider the claim.
Complaint not upheld. See the full case study

Chronic illness, no income protection, insurer on enquiry
Lesson for clients: Always accurately disclose your full medical history and write it down
In 2001, Robert* arranged life insurance and income protection cover, with the help of a bank adviser. When Robert completed the application, he didn’t declare any medical conditions.
Years later, when Robert was diagnosed with a chronic medical condition and couldn’t work, he made a claim under his income protection policy.
The insurer obtained Robert’s medical records and found several consultations relating to chronic headaches. The insurer avoided the policy and retained all premiums paid. Three independent underwriters confirmed Robert’s non-disclosure was material. They said, if they’d known about Robert’s headaches, they would have asked for more information and the cover would not have been provided on the same terms as offered.
However, the bank confirmed that when the policy was arranged, Robert told the bank adviser he suffered from regular headaches and had recently had an MRI scan.
As the bank adviser was the “representative of the insurer” (section 10 of the Insurance Law Reform Act), the bank and the insurer were regarded as having notice of all information the bank adviser knew. The law says if the insured tells the insurer enough information to prompt the insurer to ask more questions, provided that what is conveyed indicates there is more information to be obtained, and the insurer does not do so, the insurer cannot rely on non-disclosure. In this case, Robert disclosed to the bank adviser that he had regular headaches requiring an MRI scan. The independent underwriters advised that they would have requested further medical information if they had been told this.
The insurer was not entitled to avoid the policy on the basis of non-disclosure. The insurer reinstated Robert’s policy and arranged to assess his income protection claim.
Complaint upheld. See the full case study

No trauma cover for childbirth trauma
Lesson for clients: Trauma insurance cover is specific. Encourage your clients to check the conditions listed in the policy, check the exclusions.
Carol* sustained significant injuries during childbirth, including a complicated 4-degree obstetric tear, and an immediate post-partum hemorrhage, which was life threatening. Carol required emergency colorectal and obstetric surgeries.
Carol’s adviser encouraged her to make a trauma insurance claim. The claim was declined, because Carol had not suffered a trauma condition as listed in her policy. Carol complained. She said this was the worst trauma she had ever experienced and exactly what she thought trauma insurance was for. The IFSO Scheme case manager said, while Carol’s experience was significantly traumatic, it wasn’t a specified life-threatening health condition listed in the policy, so there was no cover. The insurer’s settlement offer, of a four-month premium credit on a goodwill basis, was reasonable.
Complaint settled. See the full case study

Vulnerable customer – what is fair and reasonable conduct?
Lessons: It is not fair and reasonable for insurers to rely on non-disclosure when the customer has limited English and limited control of the sales process.
When Lagi* went to her bank, she completed an application for life, critical illness, temporary disability and redundancy cover, with the help of a bank employee. Four years later, when Lagi was diagnosed with breast cancer, she made a critical illness claim to the insurer, which was declined and the policy avoided. The insurer had found medical evidence to show Lagi had a history of anaemia, but Lagi had answered “no” to a question on the application about blood conditions, including anaemia. However, people can only disclose information they know about.
The IFSO Scheme can consider the educational, cultural and personal circumstances of complainants. Consistent evidence confirmed Lagi, who was born in Tonga, had difficulty understanding English, especially technical terms. Lagi’s doctor said she wouldn’t necessarily have recognised the term anaemia. When Lagi was diagnosed with breast cancer, the oncology department organised an interpreter to discuss chemotherapy.
Lagi did not approach the bank to purchase the policy. This was relevant because, where a person is sold a policy which they have not actively set out to purchase, the seller cannot rely on the purchaser having made their own enquiries, or having a general understanding of the policy or their obligations.
The bank controlled the sales process and the bank employee completed the application for Lagi.
Accordingly, the sales process, together with the bank’s procedure to complete the form on Lagi’s behalf, significantly contributed to the result in this case.
Based on the evidence, the IFSO Scheme concluded it was not fair or reasonable for the insurer to rely on non-disclosure to decline the claim and avoid the policy.
Complaint upheld. See the full case study

Life insurance reduced payment, non-disclosure
Lesson for clients: If material information has been left off the application, the insurer is not obliged to make a payment on death
After Mary* died, her son Tom* made a claim to Mary’s insurer. The insurer said Mary had left out information about her diabetes, stress, high cholesterol, high blood pressure and asthma on her application; and she had not accurately recorded her weight.
The insurer offered Tom a reduced payment (to take into account the premiums Mary paid over the years if the insurer had known her full medical history), plus a goodwill payment of $10,000. Tom didn’t accept the offer.
The IFSO Scheme case manager informed Tom that the insurer was not legally obliged to make this offer. Two independent underwriters confirmed Mary’s diabetes and high cholesterol was material information – it would have affected the cover offered to Mary. They confirmed they would have charged higher premiums if her health information had been disclosed. The insurer was, therefore, entitled to decline the claim and avoid the policy on the basis of nondisclosure.
The case manager said the offer made by the insurer, which was still open to Tom, was a fair and reasonable resolution.
Complaint not upheld. See the full case study

*Names have been changed.

With a background in law and alternative dispute resolution, Karen Stevens was appointed as the Insurance & Financial Services Ombudsman in 1998. She is a qualified arbitrator and mediator and has a Master of Laws, majoring in conflict resolution. Karen is a founding member of the Australian and New Zealand Ombudsman Association, and the current Chair of the International Network of Financial Services Ombudsman Schemes.