Complaints body highlights problem areas in consumer finance market

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The Financial Ombudsman Service received 39,479 disputes during the year to June – an increase of 16 per cent over the previous year. Consumer credit disputes topped the list of complaints but the growth in dispute number was a result of problems in the general insurance market.

FOS says the growth in general insurance disputes reflects heightened consumer awareness and expectations in such areas as claims turnaround and repair quality.

The majority (94 per cent) of FOS’s 13,422 members (financial institutions) had no disputes lodged against them. When members did have a dispute lodged against them, most had only one dispute.

However, there were 49 members each with more than 100 disputes lodged against them.

Financial planners account for 27 per cent of FOS membership, accountants 15 per cent, general insurance brokers 13 per cent, fund managers 7 per cent, finance brokers, 6 per cent and credit providers 6 per cent.

Forty-three per cent of disputes were related to credit, 35 per cent to general insurance, 7 per cent to deposit taking, 5 per cent to payments and 5 per cent to investments and advice.

The issues raised in disputes involving general insurance included cancellation of policies, claim amounts, denial of claims,

The vast majority of general insurance disputes (more than 90 per cent) related to domestic insurance, with the most common types of insurance polices subject to complaints comprehensive motor vehicle, home building and travel insurance.

More than two-thirds concerned an insurer’s decision to decline a claim or vary the claim amount.

One major issue FOS dealt with during the year was denial of claims lodged by applicants with mental illness. In one dispute a consumer had bought travel insurance to cover the period from January to April 2015. While on the trip, the consumer suffered a psychotic episode following a car accident and was hospitalised, with the rest of the trip cancelled.

The consumer did not have a history of a pre-existing mental illness, nor was it suggested that this was a case involving non-disclosure or misrepresentation of a pre-existing condition.

The insurance claim was denied, with the insurer relying on a general exclusion relating to claims arising from depression, anxiety, stress, mental or nervous conditions.

In March this year, a FOS panel found that the insurer was not entitled to rely on the mental illness exclusion because it was contrary to the Disability Discrimination Act 1992. The panel found that the mental illness exclusion discriminated against the applicant.

It was satisfied that the blanket “general exclusion” relating to mental illness was unlawful because it treated a person with a disability differently to a person without a disability.

The consumer was entitled to compensation relating to cancellation fees, reasonable hospital ad medical expenses and additional expenses for a travel escort.

Another big issue in the insurance market is mis-selling of “add-on” insurance – usually consumer credit or asset protection insurance sold by car dealers as part of a car sale.

Consumers are often unaware that they have taken out cover and in many cases they would be ineligible to make a claim.

While the big increase in the ombudsman’s workload came from general insurance disputes, the largest number of disputes relate to consumer credit – home loans, credit cards and personal loans.

The majority of consumer credit disputes were about financial difficulty (people not being able to make their repayments and needing a change to their credit contact).

Other significant issues involved in consumer credit disputes include privacy and confidentiality, fees and charges, disputes over whether instructions were carried out and disputes over failed transactions.

FOS made some changes to its process during the year, including the introduction of a “live chat” function, which makes it easier for consumers to lodge a complaint.

At June 30, consumers were owed more than $14 million in unpaid FOS determinations. A total of 218 consumers were out of pocket because 39 financial service providers were unwilling or unable to comply with FOS determinations.

Half of the institutions that have not paid are financial planners.


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