The Financial Ombudsman Service Australia (FOS) has today released a report detailing the approach of FOS to Insurance Broker Disputes. Such disputes often arise where a consumer alleges that a broker has failed to arrange adequate insurance or failed to fully inform consumers of the terms of cover, such as relevant exclusions.
FOS has stated that for a broker to discharge its duties to its client, brokers must ensure that cover is sufficient to meet the consumer’s needs, and that any exclusions affecting cover are fully explained.
FOS advised this does not mean that all exclusions need to be carefully reviewed with the consumer. However, brokers should go through any exclusions which are inherently obvious and/or almost always imposed on certain policies, for example, wear and tear exclusions in home and building policies. A broker will not be negligent by failing to explain an exclusion unless the consumer specifically disclosed a need for cover affected by the exclusion.
The report states that if the broker is aware that the client is unlikely to read the material provided by the broker further steps should be taken, such as bringing the relevant material to the attention of the client possibly verbally or in person. Brokers should always ensure there is documentation to substantiate verbal meetings, such as file notes.
The report highlights that FOS is wanting to see evidence of brokers assessing each client’s needs and tailoring the service to that client.
It is important to note, that even if FOS finds that broker has failed to inform a consumer of a relevant policy exclusion, compensation will not always be awarded. It must still be found that the broker’s failure actually caused the loss. This is done by considering what would have occurred has the failure not occurred. Compensation will then only be awarded to place the consumer in the position they would have been, but for the broker’s failure.
The availability of cover will also be relevant to assessing whether the client has suffered any loss as a result of the broker’s actions.
While the report confirms that FOS takes a common sense approach to complaints, FOS has suggested that brokers adopt the following steps to minimise the risk of a dispute:
- Ensure practices and processes are in place to ensure the consumer’s insurance needs are fully canvased and recorded. This can be achieved through detailed checklists , fact findings documents and questionnaires when first discussing coverage and if necessary, upon renewal.
- Ensure you are undertaking all reasonable efforts to arrange a policy suitable to the consumer’s needs, and keeping communicating such efforts to the consumer.
- Informed the consumer (most preferable in writing) of any inability to arrange the cover sought, and advise in detail any exclusions which will impact their insurance needs. As noted above, setting out relevant exclusions in a covering letter or on the front page of the policy will assist with this.
- Provide enough advice to the consumer to ensure they are able to make an informed decision about their insurance needs.
- Review the terms of agreement between the parties to ensure all obligations are being met.
The report follows on from the recent FOS forum where FOS acknowledged that not many insurance broker disputes proceed to determination. The report does provide insights into FOS’ approach to insurance broker disputes and puts the profession on notice of what is the focus of FOS in these types of disputes.
The full report can be read here.