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The consequences of incorrect advice

The story

Scott had been Joanne’s insurance adviser for 10 years.  In August Joanne contacted Scott and asked him to arrange an additional $100,000 in life cover.  Joanne expected that Scott would simply add the additional cover to her existing life insurance policy.  However Scott reviewed the policies available, and advised Joanne that for only $5 a week more she could change to a new insurer and have her existing cover, plus additional $100,000 life cover and income protection cover.  Joanne asked Scott to proceed with the proposal.


Unknown to Scott, Joanne had experienced a severe migraine and her doctor was concerned it may have been a mini-stroke.  In September, when the new insurer learned of Joanne’s medical history, it advised it would insure Joanne, but placed a high loading on the premium.  Scott recommended Joanne keep her insurance with her old insurer and that she start the additional life and income protection cover, costing Joanne an extra $40 a week, while Joanne had her health reviewed by a specialist.


In October Joanne told Scott she could not afford the new insurance.  Scott emailed Joanne and told her the new insurer would refund the premium loadings once she received a clean bill of health, and that he would pay $400 towards the premiums in the meantime and contribute $200 towards the medical review.  Scott paid Joanne $400 in October.


Joanne continued with the new policy, but in November stopped paying her original insurance premiums, because she could not afford both policies.  


In March the next year, after Joanne had seen the specialist, the new insurer removed the premium loading on the life portion of the cover and kept a 50% loading on the income protection cover.  The new insurer also offered to match Joanne’s existing cover with no loading.  The new insurer declined to refund the premium loadings Joanne had paid.  By now Joanne’s insurance with her old insurer was $700 in arrears and she felt she had no option but to let the original policy lapse, and accept the new policy offered.  Scott paid Joanne $500 towards her medical review costs of $900.


After about a year Joanne’s financial situation changed, she could not afford the insurance at all, and her new policy lapsed.



Joanne considered Scott was responsible for her insurance lapsing.  She said that if he had followed her instructions and arranged an additional $100,000 life cover with her existing insurer she would have been able to afford her insurance costs.  Joanne said Scott misled her when he told her the new insurer would refund the premium loading, this lead her to keep the policy when she would otherwise have cancelled it and kept her existing policy.  Joanne felt that Scott had manipulated her so that she had no option but to move to the new insurer.  Joanne felt Scott was influenced by the commission he would receive when changed insurers.


Scott accepted he misled Joanne when he said the insurer would refund the premium loading.  Scott offered to pay the premiums arrears ($492.08) to recommence Joanne’s policy and pay her all the premium loadings she had paid ($607.44). 


Joanne declined Scott’s offer.  Joanne had calculated that she had paid an additional $4,000 in insurance premiums as a result of changing insurers and she wanted Scott to pay her $4,000. Scott did not agree to pay $4,000 in compensation, and referred Joanne to FSCL.


FSCL’s review

It was undisputed that Scott incorrectly advised Joanne that the insurer would refund premium loadings following the specialist’s opinion.  We found Scott’s advice had influenced Joanne’s decision to keep the new policy, causing her some direct loss and financial hardship.  However we did not find the misleading advice had the consequences claimed by Joanne.  Scott had already paid Joanne $400 towards her premiums.  It was not clear what she had used this money for, but it did not appear to have been used to pay insurance premiums.  Scott paid Joanne a further $500 in March towards the specialist’s expenses.


We could not see any evidence that Scott had improperly advised Joanne to take the new insurance, in order to maximise his commission.  While it may have been helpful if Scott had presented Joanne with an alternative quote from her existing insurer it seemed likely that enquiries about Joanne’s health would have been made and possibly a similar loading applied.  We also noted that Joanne had had the benefit of cover.


During our process Scott’s original settlement offer remained but Scott offered as an alternative to pay Joanne $1,000 to resolve her complaint.  We talked to Joanne about the settlement offers available, but Joanne maintained her view that $4,000 was the only settlement she would accept.  Joanne felt Scott’s advice left her with no alternative but to accept the new insurance offered in March at a higher premium costing her approximately $4,000 more than if she had remained with her original insurer.



By the time the complaint had moved through our process Joanne had arranged alternative insurance so Scott’s offer to pay the insurance arrears was no longer relevant.  We considered the cash settlement offer of $1,000 was reasonable compensation for the consequences of Scott’s incorrect advice.  Joanne accepted our formal recommendation that the complaint be settled by payment of $1,000 from Scott.