Insurance policies such as life assurance, critical illness policies, and other related policies were often purchased with the assurance that if things went wrong, you would be protected. With the current uncertainties surrounding the coronavirus outbreak and the medical and financial challenges it brings, it is hard to think of any time in recent history when we may rely more on these policies for protection. It is also at these critical times that nasty surprises can be discovered about the terms of a policy and the willingness, or not, of the insurer to make the payment they were expected to make.
As with all insurance, the detail in the policy is critical to understanding what it is that you are exactly covered for. We advise you to carefully consider any insurance policy prior to its inception, or seek advice to ascertain exactly what you can expect from the policy. If you have existing policies, we advise you to carefully consider the terms of the policy well in advance of any circumstances where you wish to make a claim under the policy.
In response to the coronavirus pandemic, the Financial Conduct Authority (“FCA”) has issued guidance which will doubtless develop as the coronavirus situation progresses.
The FCA has recognised that during this time, many customers will find themselves in a “vulnerable position”. The FCA has stated that, “we expect insurers, given the unprecedented impact of coronavirus, to be aware of the circumstances that their customers find themselves in” and further, “we expect firms to consider very carefully the needs of their customers and show flexibility in their treatment of them.”
The FCA has also recognised that insurers may seek to limit their exposure to risk related to the coronavirus pandemic, and has issued specific guidance on this regarding renewals and mid-term adjustments to policies. This guidance may help afford protection to consumers.
Renewals of existing policies
If your insurance policy is coming up for renewal and the insurance company wishes to make changes to the policy to makes exclusions related to coronavirus, the FCA has made it clear that “If firms are changing their policies to exclude coronavirus, we expect them to make it very clear, in a prominent position, to those consumers whose policy is due to renew, that their policy has changed, and of the exclusion – both before renewal.”
The FCA also stated, “we expect firm to consider the needs and particular circumstances of individual consumers (taking into account any vulnerabilities) when considering what may be an appropriate change to make. Firms must demonstrate that they are complying with our rules and treating customers fairly.”
Mid-term adjustments to existing policies
When an insurer wishes to make mid-term adjustments regarding coronavirus to an existing policy, the FCA has reminded insurers that there are many requirements before an insurer can seek to vary a contractual term, including:
- Whether there is a written term in the contract that states they can make the changes that they wish to make.
- Whether due regard has been given to the interest of their customers and treating customers fairly (per FCA Principle 6). Additionally, to consider the information needs of their customers and communicate information in a way that is clear, fair, and not misleading (per FCA Principle 7).
With the above in mind, there are some general points which may be of particular relevance to anyone with life assurance, critical illness, or income protection insurance in the present time.
Existing insurance policies, including critical illness cover, income protection, and life insurance
You are advised to carefully check the terms of any such policy to determine the likelihood of it making a payout if you were to be affected by coronavirus. Most household name insurers have published relatively clear guidance on coronavirus. This information should enable you to access the sections which are most relevant to your particular policy, and may give an indication of the likelihood of your policy making a payment if you were affected by coronavirus.
If your policy is due for renewal in the near future, you are advised at the renewal stage to carefully check the terms of the policy to determine if the insurer has altered any of the terms in it which may exclude cover for events caused by coronavirus. If this has occurred, you should seek advice as to whether this was permitted.
If your insurer is seeking to make a mid-term adjustment to specifically exclude events caused by coronavirus, you are advised to seek advice on this before agreeing any adjustment. It may be that the proposed change can be challenged, and the insurer may not be permitted to make the change.
If the time ever arose where you found yourself seeking to make a claim under a policy, unfortunately there can be exclusions such as coronavirus not appearing as a specified illness under a critical illness policy, or the requirement to be out of work for four weeks before an income protection policy will pay out. Despite this, early indications are that life insurance policies will pay out for coronavirus fatalities, but this will depend on the terms of the individual policy. The devil really is in the detail as to whether a policy will pay out or not.
Policy has failed to pay out as you expected
It ought to be apparent from the above that, unfortunately, there are a number of ways that an insurance policy may not operate in the way you believed it would. If you were to find yourself in the unfortunate position of having made a claim under an insurance policy and it did not pay out as you expected, there are ways to seek redress.
The first avenue is to make complaint to the insurer and then the Financial Ombudsman Services (“FOS”) which can make a binding award of up to £350,000 (£355,000 from 1 April 2020) against the insurer. The FOS is a service which exclusively deals with complaints about the actions of companies in the financial services sector, and it will hear complaints in relation to insurance. The FOS is not a court of law, but it will look into what is fair and reasonable under the circumstances to reach a binding outcome on the insurer.
From our experience, a well presented claim can make all the difference in whether a complainant achieves a successful outcome or not, and legal arguments can be very persuasive when presented thoroughly. It is important to adhere to the requirements set forth by the FOS, including time limits, and making a complaint to the business first before approaching the FOS. You should also be aware that accepting an award from FOS may preclude you from then bringing proceedings in court.
Another alternative is through the courts, normally by way of allegations of breach of contract. This can be an extensive process requiring expert legal advice to present the claim. The insurance company will normally have lengthy exclusions in the policy, and lawyers retained to defend such allegations of breach of contract. It is important to understand the terms of the policy fully when making such a claim, however, these claims can be successful with the right advice and legal team.
Finally, if you were advised by a broker or financial adviser to take out an insurance policy and ultimately what you believed you had been covered for was not in fact covered, then you may be able to make a claim against them in the courts or the FOS for the pay-out not made by the insurer. This is one of the more complex areas of law, but if the insurance company has not made payment, this can be a viable route to obtaining redress, and has resulted in many settlements which otherwise would not have been possible.
These are unprecedented times, and it is likely that there will be a very large increase in claims by affected people from their insurance policies. The extent to which insurers may seek to avoid liabilities for losses arising from the coronavirus pandemic remains to be seen. Regardless of what transpires, it is important to firstly know exactly what your policies cover, and to secondly be aware that if any issues arise, there are avenues for redress.