An adviser rang in to say a new client had developed a health condition and was unlikely to work again.
The client had life, TPD and income protection insurance with a bank insurer arranged by a bank financial planner some six years earlier.
The Dover adviser helped the client lodge a claim for income protection insurance benefits with the insurer, and it appears likely the insurer will deny the claim based on non-disclosure of relevant health conditions.
Our response was to encourage the adviser to represent the client in the claims management process, and to confirm his view that a SOA is not needed because no personal advice has been provided.
We noted that with risk insurance advisers’ real incomes dropping by 40% from 1 July 2018, as the LIF reforms kick in, claims management is a legitimate new service to offer clients, for a fee. So developing skills in this area made sense commercially. You have to start somewhere and it may as well be here.
Our suggested strategy was to:
- wait and see if the claim is denied, and if so for what reason(s)
- in the likely event the claim is denied, to immediately complain to the bank financial planner’s internal dispute resolution process on the grounds the financial planner failed to exercise the appropriate standard of care and was therefore negligent. The client has suffered damages caused by this negligent act or omission and the damages are equal to the sum insured, ie $5,000 a month to age 65
- in the equally likely event the complaint is not accepted, to immediately escalate the complaint to the bank financial planner’s external dispute resolution body, ie the Financial Ombudsman Service (FOS)
- here a FOS complaint is a cost effective simple way to force the bank financial planner’s hand, by requiring he/she lodge a response to FOS. This gets around the stone walling time wasting tactics otherwise likely to be employed by the bank financial planner’s legal team
- we suggested a fee of $3,000, and that this amount be included in the damages claim ($3,000 is the maximum costs FOS can award)
- we explained there was no downside to a FOS complaint:
- a “no” answer from FOS was equivalent to a very cost efficient legal opinion, which did not stop the client from taking the matter to court if he wished to do so
- a “yes” answer from FOS means a damages award, up to the maximum of $309,000, with the client able to go to court for the balance if he wished to do so
- as a practical matter, faced with a successful FOS complaint and damages award, the bank financial planner would probably settle any “additional” court case as quickly as possible.
- we encouraged the adviser to be very objective. He has to be mindful his client may be twisting the facts; it may be the client deliberately misled the insurer, with or without the connivance of the bank financial planner. It has happened before. We noted clients will often lie, and that he should be on guard against this, and should not become complicit in any dishonest claim. If he becomes aware of the client lying at the least he should cease to act for the client, and get legal advice about what further steps are appropriate and
- we saw the FOS process as a good way of getting this question, ie the client’s state of mind and whether there was a deliberate non-disclosure, out and there for investigation.