FSCL says client complaint a non-disclosure warning
A client who complained her adviser had not told her she would need to provide financial statements if she wanted to claim against her trauma policies took her complaint to FSCL.
Monday, August 17th 2020, 6:00AM 
6 Comments
The woman met with an insurance adviser to review her cover – she already had a $1 million life insurance policy with one insurer and another $300,000 policy with another, but no trauma, critical illness or mortgage replacement cover.
The adviser recorded that she was working 28 hours a week as an accountant in her own company and studying part-time.
It was recommended she combine her life insurance policies with one of the existing insurers and cancel the $300,000 policy. The adviser also said she should include some trauma or critical illness cover and mortgage protection cover in case she could not work for a period of time.
The woman accepted the adviser’s recommendations. She cancelled the $300,000 policy and a new policy providing cover for trauma/critical illness commenced in October. In November she tripped and fell, injuring her back.
She submitted a claim under her trauma/critical illness insurance, stating that she had been working as an accountant for 30 hours a week. She also stated on her ACC form that she had been working for 40 hours a week.
When the insurer asked for documents to corroborate her income, she was unable to provide convincing information. The insurer then discovered that she was a full-time student. The insurer declined the claim and voided the new insurance policies but later reinstated the $1 million life policy that she had before the changes were made.
The woman complained that the advice she had received from the adviser caused her to lose the $300,000 life insurance policy that she had cancelled on the adviser’s advice. When the complaint was not able to be resolved directly with the adviser, she went to FSCL.
She told the dispute scheme the adviser had not told her she would have to provide financial statements to support any claim.
The adviser stood behind the advice he had given, saying that he gave cursory advice about the claims process, and noted that she was an accountant and he expected that she would know that audited financial statements would be needed to support a claim.
“We were satisfied that the advice to increase the cover with one insurer and cancel the smaller policy was sound advice and had not caused any loss,” FSCL said.
“Although [the client] lost the $300,000 life cover with the second insurer, because the first insurer had voided the new policy from inception, this was due to her ‘material non-disclosure or misstatement’ in not being completely truthful regarding the income she earned and was not due to anything the adviser had done.
“We were unable to determine what advice the adviser had given [the client] about the information she would need to provide to support a claim, but we explained to her that this did not appear to be the cause of her loss. It seemed to us that her loss was caused by her being unable to give the insurer the information it needed to substantiate the number of hours she was working each week.”
The client was recommended to discontinue her complaint. FSCL said, while she was disappointed, the client agreed. “You are responsible for providing your insurer with all the information they need to assess your claim. It is also important to tell your adviser your true working arrangements when you arrange cover,” FSCL said.
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Comments from our readers
It is not correct to claim she 'lost $300,000 life cover'. She can apply for more cover.
'Lost life' cover is not a realised loss unless and until she is declined from taking it up with any other insurer (with proper and full disclosure this time)but even if that is declined (short of a loading on premium (maybe something can be made of that as a loss)) she will still not be able to prove a realised loss of $300,000 until she can claim a benefit on the policy and show she would not have cancelled the cover or any part of it before that time (in other words she would have to show she maintained the $1 million and made additional and probably, once her back condition got better, repeated attempts to apply to get an additional $300,000 life cover).
Glad to see it was thrown out as it absolutely should have been.
Life cover, Trauma, TPD Not IP, MPI and working 30 hours, make that 40 hours, but in reality not working at all
So it is the advisers fault
And FSCL gave it "air time"
Trouble is, the disputes resolution industry don't know what they are talking about when it come to the insurance industry
Very poorly thought out structure everywhere you look, all trying to fix something that was not broken
The disclosure issue around job status is one thing, but it has little to no bearing on the underwriting associated with life cover or trauma cover.
The advice appears to be to move the $300k of life cover to the existing insurer of the $1mil and add Trauma cover.
Now in the normal scheme of things, the two things we have been told have no bearing on the terms of either life cover or the trauma cover. With the back injury being after the policy was issued.
It would appear the $300k of life cover wasn't transferred. In which the client decided that the $300k of standalone coverage was to be cancelled and not replaced.
Which brings us to the point of underwriting trauma and maybe the life cover.
For the policy to be voided from inception, which is what it appears to be, the client had flagrantly non-disclosed on the application form, this is the real issue. And to have a policy cancelled from inception, the findings from the medical notes must have been pretty extensive.
The insurer on receiving the claim form, and the authority to seek medical notes, must have looked at the case and the disclosures and gone something is fishy to then request the medical notes rather than kick it back as the obvious not covered condition.
I'm betting that the disclosure of prior to application symptoms on the claim form or the associated medical information prompted the claim manager to dig further.
I can understand FSCL looking at the case, as the advice around the situation and the likely story told to them would be grounds to have a closer look, loss of benefits being a serious issue.
Because it was well documented by the adviser, I'm not surprised by the outcome ruling in favour of the adviser.
And heading into the new rules we are going to see a lot more of this.
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When did that happen?
Let's just set aside that this whole thing is rooted in (yet another) client trying to claim trauma for a temporary disability event. OK?
"She told the dispute scheme the adviser had not told her she would have to provide financial statements to support any claim."
IT'S TRAUMA COVER!!!! No, you don't need to provide financial statements for cancer, stroke and heart - ~90% of claims. Not "any claim", just your one! That statement is patently false - because she is alleging he didn't something he could never do. Now, if you have a good policy, which also covers certain injury claims, and the definition of disability involves hours worked, you are a very long way down the list of possible low-frequency claim events.
But if you have said you are working 30 hours, no 40, no; I'm an... accountant... oh, actually I'm studying full time.... GTFO. This is why the insurer will have required the financial info in the first place
“We were unable to determine what advice the adviser had given [the client] about the information she would need to provide to support a claim ..."
That would a big ask for any of us.
I suppose if a standard SoA was to quintuple in size to include a special section dedicated to giving the requirements for claiming in all possible scenarios, sure that might be a thing the adviser could "prove" he had covered off. But if you're gonna do that, you have to do it for DI and TPD too. So that will increase the size of your SoA by a factor of 17.
I reckon FSCL dropped the ball by even giving the hint of a scent of an impression that there was merit in the idea that the adviser should have advised on claim requirements to the degree the client alleges - simply by not clarifying that it is not part of the advice process.