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Replacement insurance – was best practice followed?

In 2010 Jane met with her insurance adviser to review her life and mortgage protection insurance cover.

After carrying out a needs analysis, the adviser recommended that Jane move to a new insurer and take out life, trauma, and mortgage repayment cover.
A year later, the adviser met again with Jane and recommended that Jane move to another new insurer. Jane filled out a proposal for the new insurance but did not disclose pre-existing health issues. The adviser told Jane that the new insurer offered the same cover for a lower premium.
Two years later Jane fell ill and made a claim under her mortgage protection insurance. The insurer declined the claim because Jane had failed to disclose that she had Type 2 diabetes and suffered some complications from the diabetes. The insurer also cancelled Jane’s policies.


The adviser did not agree that he should pay compensation. The adviser said that Jane had answered no to the questions about pre-existing health conditions. The adviser also said that when Jane approached him for advice, she wanted cover that was more affordable and better suited to her needs. The adviser felt that he had been acting in Jane’s best interests when he recommended that she move to a new insurer who would offer her better benefits for a lower premium.

Jane then complained to FSCL.


The adviser had sent Jane a copy of her completed application form, pointing out that she should re-read the information about her duty of disclosure. This suggested that the adviser had previously discussed the duty of disclosure with Jane. The adviser also had notes of a discussion with Jane about an old neck injury and whether or not a new insurer would accept a claim relating to the injury.

Jane had suffered from diabetes and complications for some years, and we thought it reasonable to expect Jane to know that she should declare her diabetes to a new insurer.

However, we were concerned that the adviser had not done any product comparison when advising on replacement insurance. We said it was not enough to simply tell a client that premiums with the new insurer will be cheaper – the client also needed to understand how the new cover would be different from the previous cover and the benefits, strengths, and disadvantages of both the new and old insurers. We noted that the adviser had not provided any product comparison when recommending the switch between of insurers.

We decided that the flawed advice process had caused Jane some stress and inconvenience.


We found that the shortcomings in the adviser’s advice process had not caused Jane a direct loss. Jane’s failure to disclose her diabetes was the cause of her loss. However, we said that the adviser should pay compensation of $1,000 for the stress he caused Jane as a result of his poor advice process.
The parties eventually agreed to settle on the basis that the adviser would pay Jane $1,000 in compensation.

Insights for participants

This case highlights the need to keep very good records of the entire advice process. In this case the adviser’s records were severely lacking because he had not done any statement of advice or product comparison between the old and the new insurers.

Since March 2021 advisers have a legal obligation to ensure that they keep good records of the entire advice process and their discussions with their clients.

Insights for consumers

This case demonstrates the importance of ensuring that you disclose all pre-existing medical and health issues to an insurer at the time of taking out life, trauma, and mortgage repayment insurance. Even if a health condition appears relatively trivial, it is better to disclose than not. If a consumer fails to disclose a pre-existing condition that is material to the insurer, the insurer may later decline a claim made under a policy and may void the policy altogether.