After an insurance ombudsman service had recommended an insurer should pay 50% of a life insurance benefit from a policy the company had deemed as lapsed, the insurer subsequently decided that the fair outcome was to pay the claim in full.
In a case study the Insurance and Financial Services Ombudsman Scheme outlines a complaint where a couple jointly owned a policy with life and trauma cover for the husband, and after his death the wife said she was not clearly told the policy was about to end or that it had lapsed.
The premiums were usually paid through the couple’s business, and this is where they received mail. The case study says after they sold the business, some premium payments were missed.
“The insurer sent letters to their business address saying the premiums were overdue and warning the policy could lapse if payment was not made.”
The insurer also left a voicemail on the wife’s phone asking her to call back and sent an email to the husband and his adviser saying the policy would be cancelled if payment was not made.
…When the premiums were still unpaid, the insurer treated the policy as lapsed and sent a letter by post confirming this…
“When the premiums were still unpaid, the insurer treated the policy as lapsed and sent a letter by post confirming this. The letter said the policy could be reinstated if the outstanding premiums were paid by a set date,” the IFSO says.
Two days after the reinstatement deadline, the husband died in a car accident.
IFSO says the wife made a claim on the life insurance, but the insurer declined it, saying the policy had already lapsed.
She made a complaint to the IFSO Scheme, saying that, as a joint policy owner, she was not clearly told the policy was about to end or that it had lapsed.
“She said she did not receive the lapse letter until after [her husband’s] death because the business was closed over Christmas and, after that, their son – who had been collecting their mail as he still worked at the business – was away on leave.”
…it also looked at whether the insurer had taken enough care when telling the couple that the policy had lapsed…
The IFSO says it looked at the policy wording and found that the insurer was legally allowed to cancel the policy because premiums were not paid.
However, it also looked at whether the insurer had taken enough care when telling the couple that the policy had lapsed.
“Under the Consumer Guarantees Act 1992, an insurer must exercise reasonable care and skill in administering/managing policies, including in relation to communicating important information about the policy,” the case study says.
“The policy required the insurer to contact both [husband and wife], as the policy owners, to advise each of them that their policy was lapsing. The insurer’s own retention process also set out how it should contact clients when premiums were not paid and when a policy was going to lapse. This stated that the policy owners should be both emailed and phoned.
“The insurer had email addresses and phone numbers for both policy owners. General industry practice is to notify owners of a policy lapse by more than post and the insurer’s own retention policy also required that.”
The IFSO Scheme says the insurer had called the wife’s cell phone and left a voicemail message, asking her to call it about the policy, but there was no reference to the fact the policy was about to lapse. The insurer didn’t call the husband, but emailed him, and did not email his wife.
“We believed this did not meet the obligation to exercise reasonable care and skill, especially given how serious the consequences of a lapsed policy were.”
At the same time, the IFSO says it recognised the couple also had some responsibility to check that premiums were being paid. They each received some notification prior to the lapse that the premiums were overdue, but neither followed up.
…However, after reviewing the complaint and our reasoning, the insurer subsequently decided that the fair outcome was to pay the claim in full…
“We discussed with the insurer our view that it was fair to share responsibility between the insurer and the policy owners and said the insurer should pay 50% of the life insurance benefit as if the policy had still been in place, less the unpaid premiums.
“However, after reviewing the complaint and our reasoning, the insurer subsequently decided that the fair outcome was to pay the claim in full.”
The case study says this “…showed good conduct and a commitment to good customer outcomes, which we commended.”