LIFE insurance and investment policies made up the bulk of the 825 written complaints to the Insurance Ombudsman last year, up from 557 in 1994. The Ombudsman, Ms Paulyn Marrinan Quinn blamed "poor communication or lack of understanding or information at the time a policy is purchased. Much could be achieved, in my view, by companies continuing to develop clearer and more explicit proposal forms and policy documents and having sales representatives trained to explain policies clearly to customers. It is equally incumbent on people purchasing insurance policies to take care to read and understand the policy documentation."
Dissatisfaction about the surrender value of policies accounts for 25 per cent of all complaints and the Ombudsman notes that many disputes arise from savings policies over partial encashment the nature of the guarantee from policies with a guaranteed sum assured and the effect that charges and commissions have on the first year value of a savings policy. Other disputes involved sales personnel inappropriately topping up insurance cover or churning a customer by recommending the sale of one policy only to replace it with another (in order to pocket a new commission).
The Ombudsman's terms of reference do not extend to independent insurance brokers - a glaring omission given that they Involve so many of the complaints she receives, and have contributed so much to the lack of credibility suffered in recent years by the insurance industry. This year, a third of all complaints - 33 per cent, up from 29 per cent in 1994 - fell outside her remit, with the largest number of cases involving outside intermediaries.
Of the complaints dealt with in 1995, 53 per cent were settled to the satisfaction of both parties, 26 per cent were settled in favour of the company and 20 per cent in favour of the complainant.
The life insurance-related case studies, which the Ombudsman includes in her report, make particularly interesting reading since they highlight her comments that poor communications between insurance companies and their customers have led to so many disputes. Family Money will be highlighting some of these cases over the coming weeks.
In one such case, the complainant took out a life assurance policy in 1989 called a 5-Year Guaranteed Management Fund which provided for the return of his £10,000 on maturity in 1994 and an income in the interim. He was shocked to discover, after the five years, that his policy was now worth just £7,422, even though he was under the impression, both from the company and from a tax relief certificate Issued for Revenue Commission purposes that the sum guaranteed was £10,000. He believed he had been misled. As it turned out, the policy document provided for the sum guaranteed to reduce where automatic income options were chosen - i.e. 9 per cent per annum. Had the client chosen the other, 7 per cent income option, his capital would have been preserved.
By 1991, the complainant had switched to the lower, 7 per cent income option, but then took no further action.
The Ombudsman sympathised with the client over the poor performance of his fund, but did not find that he had been misled by the company, which she found had explained the implications of taking income from this product. She ruled however that the policy document was "at best, flawed and could easily confuse the policy holder as to its true construction". The company agreed to pay an ex-gratia payment of £300 to the complainant.
