The Association of British Insurers has published guidance on the fair treatment of claims for life, critical illness, income protection and other long-term protection insurance contracts. The guidance has been drawn up in consultation with the Financial Ombudsman Service and reflects current insurance industry practice as well as FSA regulation and the Treating Customers Fairly regime.
The guidance is applicable for the treatment of non-disclosure (which for the purposes of this guidance includes both the omission and misrepresentation of material information) during the application process and discovered at the point of claim.
The guidance sets out the proposed consequences of three categories of non-disclosure all of which would have resulted in a different underwriting outcome:
- Innocent. Where the customer has acted honestly and reasonably in all of the circumstances. In the circumstances a reasonable person would have considered that the information was not relevant to the insurers. The outcome is to pay the claim in full.
- Negligent. Where the non-disclosure resulted from insufficient care being taken by the customer. This might include an oversight but may also include serious negligence. The outcome is to pay a proportionate remedy.
- Deliberate or without any care. This would apply where the non-disclosure was deliberate or without any care. In this situation the customer knew, or must have known, that the information given was incorrect and relevant or they acted without care as to whether the information was correct or relevant. The outcome is to avoid the policy.
The guidance provides information on assessing claims, intermediate sales, collecting medical information, proportionate remedies and the characteristics of innocent and deliberate non-disclosure. A flow chart for assessing the outcome of a non-disclosure discovered at the point of claim is included in the guidance. The guidance comes into effect immediately.