Spike in adviser complaints: FSCL

Complaints about insurance brokers to disputes resolution scheme Financial Services Complaints Ltd (FSCL) have doubled over the past year.

Tuesday, November 3rd 2015, 6:00AM

FSCL has released its annual report, which shows it investigated and resolved 193 cases, dealt with 2163 consumer inquiries and complaints and took 54 working days on average to resolve a case.

It dropped fees by 15% for its 6000 members in the year.

Complaints about insurance companies made up the biggest portion of the cases that were formally investigated, at 29%. Lenders were the second-biggest category, at 23%, followed by complaints against transactional service providers, at 10%.

Consumer credit arrangements were the most-complained about product.

After two years when insurance broker complaints remained steady, the number doubled in the 2015 financial year to 13.

In addition, there were almost 50 complaints about financial advisers, up from fewer than 40 in the 2013/2014 year and fewer than 20 in the 2012/2013 year.

Chief executive Susan Taylor said it investigated a number of complaints where consumers were sold replacement insurance, usually health, life or income protection.

There were two main categories of complaint: Consumers who said they received inadequate advice about the risks of changing, particularly with a pre-existing medical condition, and clients asked to pay a commission clawback.

In one case, a complainant had changed life and health insurance providers in order to save on premiums. While the changes were being processed, he experienced problems with his knee, which were disclosed by his doctor to the new provider. His new policy excluded cover for any knee-related claims, but by this stage he had already cancelled his old policy.

Taylor said: “Shortly afterwards, the complainant required knee surgery. He complained to FSCL that his adviser had failed to counsel him against cancelling his existing policy before ensuring the new policy provided adequate cover. As a result he claimed he was $25,000 out of pocket.”

FSCL was able to facilitate a settlement between the two parties, with no admission of liability from either side, and the adviser paying the complainant $13,250.

She said: “It is really important that consumers understand the potential costs and pitfalls of changing insurance provider – particularly where they have a pre-existing medical condition.”

In another case, an adviser asked a client to back $7500 when she cancelled her insurance and repaid her loan. The adviser said her terms of engagement stated she could charge a fee if an insurance policy was cancelled within the clawback period.

FSCL said the line in the adviser's disclosure document: “I may charge a fee if the insurance policy is cancelled within the insurer’s clawback period on commission paid” was inadequate disclosure because it was buried under an unrelated heading and contained jargon.

FSCL said such a term should be clearly set out and based on an hourly rate, stating a maximum amount that could be charged.

The complaint was resolved when the adviser agreed to cancel the clawback.

Chairman Kenneth Johnston said FSCL wanted to see the opportunity explored to promote dispute resolution schemes in collaboration with the government, the amount of compensation that could be awarded for inconvenience increased from $500 to $2000 and a requirement for all participants.

Taylor said she would continue to advocate for a single free-phone number for all the schemes.

FSCL ended the year with a net surplus of $248,361, up from $207,732 in the 2014 financial year.

Tags: Financial Advisers FSCL health insurance Income Protection Life insurance