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FSCL: New rules could help non-disclosure problems

External disputes resolution providers say non-disclosure is a big issue for the New Zealand insurance industry, and advisers could be doing more to help.

Thursday, March 2nd 2017, 10:00AM 3 Comments

by Susan Edmunds

Insurance and Financial Services Ombudsman Karen Stevens said about 11% of the complaints her office received last year related to non-disclosure.

She said there needed to be a law change on non-disclosure to help customers who accidentally left out information when they applied for insurance.

“We need legislation to bring us more in line with the law in Australia and the UK, preferably an Insurance Contracts Act. This would help prevent many consumers from finding themselves in the difficult situation of being uninsured, or potentially, uninsurable.”

She said advisers needed to remember they had a role in educating clients about their obligations. She said if they were filling out forms for their clients, they needed to remember that there was the possibility the client might complain about them in future. She said her office sometimes got complaints from clients who said they did not understand or were not told about what they were meant to disclose.

At FSCL, chief executive Susan Taylor said her office received one or two complaints a month from clients who said an adviser had not properly explained their duty of disclosure when they took out a policy.

“Or the client says that they told their adviser about a certain medical condition and the adviser has said not to bother writing that down on the insurance proposal form. These complaints infer that the adviser is acting in his/her own interests - to sell the product, rather than the client’s interests,” she said.

“Under the current review of the FAA, it is proposed that all advisers will be required to place the client’s interests first, and all advisers will be subject to a new code of professional conduct, that will endorse the 'client’s interests first' rule. I hope this will, in time, lead to a reduction in the complaints that we see.”

Tags: FSCL

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Comments from our readers

On 3 March 2017 at 2:15 pm Barry Read said:
The issue of clients stating the adviser told them to not put it down is in some cases a red herring. There is evidence in Australia from an ASIC claims review that claim decline rates via direct channels caused by non-disclosure are higher than advised channels. We see more cases where the non-disclosure is caused by clients disclosure differing from Doctors notes or records. Doctors write one thing and tell the clients another. Out of 5 cases we have seen where clients blamed advisers for non-disclosure the adviser has been able to show that they sent the clients copies of the personal statements reminding them of their duty to disclose and to ensure that the statements are correct. Even after this the clients blamed the adviser for the non-disclosure. The real issue is if the non-disclosure is material to the cover type and claim. There needs to be a better process to handle disclosure and assessment of risk for insurance, not a change in adviser obligations.
On 3 March 2017 at 2:53 pm Tash said:
This issue was covered in another forum under an emotive heading claiming insurance law was ruining lives. I've replicated one of the comments thereto that I think is spot on below...

This will dramatically drive up premiums or result in additional exclusions/reduced cover. Not fair on the diligent/honest. We should stop rewarding those who cannot be bothered to read terms and conditions and then expect others to bail them out. A famous Justice once said the law of equity is there to protect the diligent not the imprudent! And by the way, it is not unscrupulous insurers 'ruining lives' it is the non-disclosure by the applicant.
On 3 March 2017 at 3:40 pm Tash said:
The law quite correctly places a duty of disclosure on applicants because the matters pertaining to their health, are known to them alone.

It would be useful if Karen Stevens could share her thoughts on how and what 'accidently left out' means in practice. The risk is that every non-disclosure is 'accidentally left out', which no solution either.

My experience with insurers in NZ is that immaterial non-disclosure of minor issues, issues one can be forgiven for 'accidentally forgetting' is not the problem. The problem is with clients who, for whatever reason, do not properly disclose what is asked of them. I suspect this is often due to not understanding the importance of disclosure and what is required, an area where a skilled adviser can help enormously. Should disclosure be an obligation of the adviser? No clearly not, but, advisers should be in a position to and actually give, suitable advice and guidance around filling out the forms. When in doubt disclose!

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