In January 2014, Elizabeth, aged 43, met with an insurance adviser to review her insurance. She had held life, trauma, and income protection insurance policies with insurer A, for 20 years. At the meeting the adviser recommended that Elizabeth replace her policies with policies from another insurer, insurer B. The adviser filled in insurer B’s application form, while Elizabeth answered questions verbally.
The form prompted applicants to tick boxes if they have ever suffered from, or had symptoms of, any of around 30 listed medical conditions. The only condition ticked by the adviser was in relation to Elizabeth having suffered from a respiratory condition. Some medical information about Elizabeth’s mother was also disclosed.
Elizabeth signed at the bottom of the list of 30 medical conditions, indicating she had looked at the list. She also signed at the end of the application form underneath where it outlined the duty of disclosure, and the section outlining the risks of non-disclosure.
Later in January 2014, insurer B confirmed cover and issued her with trauma, life, household expenses, and premium cover. Over the next few years, Elizabeth contacted the adviser to update him when she developed some medical conditions.
Elizabeth makes a claim, and some of her policies are cancelled
In late 2018, Elizabeth suffered from a brain bleed and she provided a copy of her medical records to insurer B. These showed that Elizabeth had developed a number of serious medical conditions after she took out her original policies with insurer A, and before she took out the policies with insurer B (at least 7 other conditions).
Upon reviewing the medical records, insurer B said that if Elizabeth had disclosed all her pre-existing medical conditions, they would not have offered trauma, income protection, or household cover, and would have offered life cover with an increased premium loading (125%). Insurer B cancelled Elizabeth’s trauma, and household expenses policies.
Elizabeth complained to FSCL that she had told her adviser about all her health conditions, but he did not pass the information onto insurer B.
On the one hand, Elizabeth said that she had disclosed her medical history to her adviser, and he did not pass it onto insurer B.
On the other hand, the adviser said he did not recall Elizabeth ever disclosing her medical conditions to him. He said he made it his practice to keep detailed records of information his clients provide when applying for cover. He said the lack of records about disclosure of any medical records was strong evidence that Elizabeth did not disclose them to him.
However, the adviser was keen to see whether he could resolve Elizabeth’s complaint, and offered to pay her $4,000. In addition, the adviser said that if Elizabeth had cause to claim in the future for an event that would have been covered under insurer A’s policies, then she could contact him to discuss further compensation.
Elizabeth did not accept the adviser’s offer, and we started our review.
Issue one – did Elizabeth disclose her full medical history?
Based on the evidence available we said it was more likely than not that Elizabeth did not disclose all her medical history to the adviser. Our decision was based on the following factors:
- Elizabeth’s evidence about what she had disclosed was inconsistent. At one point she told FSCL she had disclosed her high blood pressure and that the adviser did not ask her for further information about this. At another point, she told FSCL she disclosed her full medical history to the adviser.
- Elizabeth seemed to understand the duty of disclosure – after taking out the policies with insurer B, she had updated her adviser about her health. She had also suffered from some of her medical conditions relatively recently, meaning that she should remember them. This indicated that Elizabeth would have known to disclose all the information about her medical history when she and her adviser met in January 2014.
- Advisers can be incentivised to move clients to different policies; where a new policy is taken out, an insurer receives an upfront commission, which is significantly more than commissions that may be paid on existing policies (trail commissions). However, although this could have been a factor influencing the adviser’s recommendation that Elizabeth move insurers, there was insufficient evidence for us to make a finding to that effect.
- Ultimately, it seemed unlikely that the adviser would not have recorded health issues on the application form if Elizabeth had disclosed them. She had also signed the form in several places indicating she accepted that the form correctly recorded her medical history.
Did the adviser do enough to prompt disclosure?
However, we said the adviser had not done enough to prompt disclosure, and explain the risks of non-disclosure. Under section 33 of the Financial Advisers Act 2008, a financial adviser must exercise the care, diligence, and skill that a reasonable financial adviser would exercise in the same circumstances. To determine the degree of care, diligence, and skill required of the adviser, various matters need to be taken into account, including ‘the nature of the services provided.’
In this case we said that because Elizabeth was replacing long-standing insurance policies (as opposed to taking out insurance policies for the first time), there was the added risk that she could lose cover she would have had if she had stayed with insurer A. There was no evidence that Elizabeth’s adviser had explained those risks to her, and this was a shortcoming in his advice process. Further, the adviser should have been able to point to records showing the reasons why he considered Elizabeth moving her policies met her requirements and objectives. In other words, we wanted to see records about why Elizabeth’s existing policies were not meeting her needs, and why she was better placed to take out the new policies.
We said that had the adviser explained the risks of moving insurers to Elizabeth, she most likely would have retained her policies with insurer A. We said that the adviser was responsible, in part, for Elizabeth’s policies being cancelled by insurer B. However, Elizabeth had contributed to her situation because she did not disclose her full medical history. Overall, we found that Elizabeth should bear 30% of her loss, and the adviser 70% of the loss.
We then began to consider how to quantify any compensation. This was difficult because Elizabeth’s complaint was about the fact her policies had been cancelled and she’d lost the ability to be covered if she had a claim in the future. However, before we needed to further consider the amount of compensation, insurer B said they would reinstate Elizabeth’s policies.
The insurer’s decision to reinstate Elizabeth’s policies resolved most of her complaint. However, Elizabeth asked whether the adviser would consider paying her the $4,000 he had previously offered; he agreed, and the complaint was resolved.
Insights for participants and consumers
When applying for insurance, especially where you are having policies replaced, it is critical that you very carefully disclose your medical history. We suggest that consumers obtain a copy of their medical history to review before applying for cover.
When financial advisers are making recommendations to their clients about taking out or changing insurance policies, they must give priority to their client’s interests. Although there was insufficient evidence that the adviser in this case recommended Elizabeth change insurers because he would receive a higher commission, equally, there was no evidence that moving Elizabeth’s policies was actually in her best interests.
From 15 March 2021, there will be a new duty on financial advisers under the Financial Markets Conduct Act 2013 to give priority to the client’s interests and to ensure the advice they give is not materially influenced by the adviser’s interests. If this case had been about advice provided after 15 March 2021, we may have said that the adviser had breached that duty. This is because he could not prove that his recommendation to change insurers was not, in part, influenced by his own interests.