How the Financial Ombudsmen Service determines insurance broker disputes

In October 2015, the Financial Ombudsmen Service (FOS), released a report detailing the approach it takes to insurance broker disputes. The report follows on from a number of open forums that FOS held around the country, in which they foreshadowed a continued increase in broker disputes.

Most broker disputes arise as a result of a denial of claim for personal and domestic property, home and building or motor vehicle insurance. Typically, the issue will be whether the broker has provided to their client sufficient information about the product and whether adequate disclosure has been made of policy terms.

Insurance brokers are held up to the same standard as any other professional. Brokers have a duty of care to their clients to ensure that they exercise reasonable care, skill and attention.

So, in practice what does this look like? First, a broker has to undertake reasonable inquiries to ascertain the client’s needs. Second, having completed those inquiries, the broker should ensure that the cover is sufficient. If an exclusion or policy term is going to impact on the client’s disclosed or ascertained needs, the broker needs to tell their client.

The report states that simply sending a policy containing the relevant exclusion/exception without drawing this to the attention of their client, will not be sufficient for the broker to have discharged their duties. Alternatively, if the broker informed the client verbally and in writing of the relevant exclusions or sum insured (and had documentation to substantiate this) that would be sufficient in most cases.

The report sets out exactly what FOS will consider in determining whether the broker has met its duty of care, that being:

  • appropriate practices and processes in place to fully canvas and record the consumer’s insurance needs;
  • undertaken reasonable efforts to arrange a policy suitable to the consumer’s needs;
  • appropriately informed the consumer of any inability to arrange the cover sought or of a relevant exclusion that impacts their insurance needs;
  • provided advice to the consumer to ensure they are able to make an informed decision about their insurance needs; and
  • established the terms of agreement between the parties.

The recommendations to brokers in the report mirror comments made by John Price (lead Ombudsman of General Insurance for FOS) to Insurance Business Online that “brokers just need to make sure they keep very clear notes on the terms of engagement, very clear notes on the instructions they have, very clear notes on their interaction with the clients so where issues do arise, they can present information and we can be satisfied that they’ve done everything that they should do as a professional in those circumstances.

Further information can be found via this link: FOS Approach to Insurance Broker Disputes
For any queries regarding this article, please contact Bridget Wall on 03 6235 5173 (bwall@pageseager.com.au).

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