The Financial Ombudsman Service (FOS) has highlighted examples of bad protection advice from complaints referred to it during the recession.
Two examples relate to mortgage payment protection insurance (MPPI), while another identifies an advice failure when selling income protection (IP).
As part of its regular newsletter, the regulator notes that over the past year it has recognised a general increase in the number of complaints referred to it where the consumer is facing financial difficulties.
It believes this reflects the tough economic climate and the harsher times that many consumers and businesses are currently facing.
Some insurers have also reported an increase in fraudulent claims they think may be related to the recession and, in response, have stepped up measures to deal with any suspicion of fraud.
The most serious complaint related to a client who had taken an MPPI policy out for a holiday home he was buying:
Mr G said he had made it clear from the outset that he was taking a mortgage in order to buy a holiday home.
When he unexpectedly lost his job through redundancy eighteen months later, the insurer refused to pay out, telling him the policy terms only covered mortgages that were ‘held against the policyholder's principal residential property'.
The onus had been on the adviser to ensure that the policy he recommended would provide the cover Mr G needed, and the adviser admitted having failed to check, at the time of the sale, whether the policy was suitable.
The insurer accepted the policy had been mis-sold, and offered to refund all the policy premiums Mr G had paid, plus interest.
However, FOS concluded that this was a serious mis-sale by the adviser, who had been acting on behalf of the insurer when selling Mr G the policy, so upheld the complaint and forced the insurer to pay it.
A second MPPI complaint was made about an unreasonable price rise from £25 to £45 a month only a few months after buying the policy:
When Mrs N complained the insurer told her its decision to increase premiums was taken ‘following an annual review of premiums and in the light of increased claims by other holders of similar policies.'
In this case, FOS raised concerns with the insurer about whether the clause had been specifically brought to Mrs N's attention and whether it was fair in law.
The insurer told it that, together with many other insurers, it had reached an agreement with the FSA that it would refund the additional amount it had been charging policyholders, following its review of premiums for mortgage-protection polices.
The insurer stressed that it did not ‘formally accept' that FOS' concerns in connection with Mrs N's complaint were valid.
However, it said it was willing to refund all the money she had paid over and above the monthly amount she had agreed at the outset. Mrs N was happy to settle her complaint on this basis.
The IP complaint was based on a pre-existing condition which had been fully disclosed when talking to the adviser.
However, as FOS explains: "We were unable to obtain any information direct from the adviser, who appeared no longer to be in business, although it was clear from the documents he completed at the time of the sale that Miss M had told him about the medical treatment she had received."
FOS concluded that the adviser had probably not understood the exclusions that applied to the policy and he had therefore not provided Miss M with accurate information about the cover that would be available to her.
Miss M's complaint was upheld and her premiums refunded with interest.
