The Financial Ombudsman Service (FOS) has suggested that the national unfair contract terms (UCT) laws should be applied to the life insurance industry.
The suggestion is contained in the FOS submission to the Parliamentary Joint Committee (PJC) inquiry into the Life Insurance Industry in which it notes that a proposal to extend the UCT laws to general insurance contracts was considered in 2013, but did not proceed.
“We consider that the inquiry should review whether the basis of the exemption remains relevant for life insurance given the importance the Financial System Inquiry (FSI) placed on ensuring fair treatment of customers by life insurers and other financial sector firms,” the submission said.
The FOS has also suggested that life insurers move further in ensuring that their policy terms and definitions are up to date, and not just with respect to so-called “on-sale policies”.
“Existing case law does not impose on financial services providers a clear legal obligation to regularly review definitions in insurance policies. The leading cases in this area suggest that a claim under a policy is to be treated as a matter based solely on contract, even if a crucial definition in the policy is out of date and this affects the insured adversely,” the submission said.
It said that, at present, this case law could in some instances limit the ability of FOS to go beyond the terms of the policy definitions under a life insurance contract.
“In our experience the review and update of medical definitions across firms currently varies considerably and the reliance by insurers on restrictive legal principles to interpret and apply medical definitions can result in adverse outcomes for consumers,” it said.
“We therefore support the industry’s commitment to regular three year reviews of medical definitions in on-sale policies, for benefits that are payable after a defined medical event.”
However the FOS submission said it believed the industry could do more in this regard.
“First, we encourage industry to consider whether the commitment to review definitions in on-sale policies can be extended to other policies. We also encourage industry to reflect on the need to give consumers clear and simple information so they understand not only that a review has taken place, but how and when an updated medical term might apply to their policy.”
