The Financial Ombudsman Service (FOS) has published on its website an insight into how it deals with complaints in relation to consumer misrepresentations and non-disclosures and the impact of underinsurance. The insights indicate that in some instances insurers are not applying the proportionate remedy rules in the Consumer Insurance (Representations and Disclosure) Act 2012 (CIDRA) correctly. The insights also reveal a common failure by consumers to understand the consequences of failing to provide full information when they are buying insurance. The insights should be reviewed for best practice in respect of sales and claims handling.

The report reveals that complaints from consumers relating to not having enough insurance continue to feature in the FOS’s casework. Many consumers do not understand the consequences of not answering insurers’ questions as carefully as possible. In a number of examples provided by the FOS individuals have failed to provide accurate estimates of the value of their possessions with the result that their policies have been avoided. Where insurers have been clear about the consequences of not providing full information the complaints by consumers have not been upheld. However, the FOS does provide examples where insurers have not taken a proportionate response, as required by CIDRA and FCA rules. For example, the FOS upheld a consumer’s complaint that they had been treated unfairly when a failure to select that they would use the car for commuting resulted in avoidance and a criminal charge of driving without insurance.

The insight is a reminder of the importance placed by CIDRA on ensuring that consumers are clearly asked about the risks to be insured. Insurers should pay particular attention to ensuring that questions prompt consumers to disclose suitable information to price the risk and sales scripts should ensure that consumers are given as much opportunity as possible to provide full and accurate information. The standard of care required for disclosure is that of a ‘reasonable consumer’, not an expert.

The insights also express concern that the application by insurance companies of ‘average clauses’ to underinsurance may not fall within CIDRA proportionate remedies.

View: Ombudsman publishes insights into complaints arising in respect of underinsurance, misrepresentation and non-disclosure