Insurance Mis-selling

Insurance mis-selling occurs when a policy is sold or recommended unfairly, inaccurately or without sufficient regard to the customer's needs and circumstances.

A policy is not necessarily mis-sold simply because a claim is later refused or the customer did not use the cover. The important question is whether the customer was treated fairly and given adequate information when the policy was arranged.

The Insurance mis-selling solicitors listed on Solicitors.com may advise individuals and businesses about unsuitable policies, misleading sales practices, rejected complaints and claims for financial compensation.

What Is Insurance Mis-Selling?

Insurance may have been mis-sold where the seller, broker, lender or adviser:

• recommended a policy that was unsuitable for the customer;
• failed to explain important exclusions or limitations;
• gave inaccurate or misleading information;
• failed to establish whether the customer was eligible to claim;
• added Insurance without the customer's informed agreement;
• suggested that optional Insurance was compulsory;
• failed to disclose significant costs or commission arrangements;
• sold duplicate cover the customer did not need;
• failed to take account of the customer's personal circumstances; or
• placed pressure on the customer to buy the policy.

The precise legal and regulatory duties will depend on when the policy was sold, the type of Insurance, and whether advice or a personal recommendation was given.

Types of Insurance That May Be Mis-Sold

Insurance mis-selling complaints can involve many different products, including:

• mortgage endowment policies;
• payment protection insurance;
• income protection insurance;
• life insurance;
• critical illness cover;
• mortgage payment protection insurance;
• personal accident insurance;
• private medical Insurance;
• home and contents insurance;
• motor insurance;
• travel insurance;
• pet insurance;
• warranty and breakdown cover;
• business interruption insurance;
• professional indemnity insurance; and
• other personal or commercial insurance products.

Was the Policy Suitable?

Where an adviser recommended a particular insurance policy, the recommendation should generally have been suitable for thecustomer'ss needs and circumstances.

Relevant considerations may have included:

• the customer's employment status;
• age and health;
• existing insurance and employee benefits;
• the purpose for which cover was required;
• the customer's financial position;
• the length and cost of the policy;
• whether significant exclusions applied; and
• whether the customer was eligible to make a successful claim.

A self-employed person, for example, may have been sold cover containing unemployment provisions that provided little or no useful protection for someone in their position.

Advised and Non-Advised Sales

An insurance policy may be sold on an advised or non-advised basis.

Advised Sales

In an advised sale, the firm recommends a particular policy as suitable for the customer. The adviser should normally obtain sufficient information about the customer and explain why the recommended policy meets their needs.

Non-Advised Sales

In a non-advised sale, the customer chooses the policy without receiving a personal recommendation.

The seller must still provide clear, fair and not misleading information. A firm cannot avoid responsibility for misleading statements or inadequate disclosure simply by describing the sale as non-advised.

Failure to Explain Exclusions

Insurance policies contain conditions and exclusions that limit when a claim will be paid.

A policy may have been mis-sold where a significant limitation was not brought clearly to the customer's attention. Examples may include:

• pre-existing medical condition exclusions;
• age limits;
• employment-status restrictions;
• waiting periods;
• maximum benefit periods;
• limits on particular illnesses or treatments;
• geographical restrictions;
• hazardous activity exclusions;
• minimum excesses; or
• conditions requiring particular security or maintenance measures.

Not every policy term has to be discussed individually, but important limitations that could affect the customer's decision should be presented clearly.

Insurance Added Without Proper Consent

A complaint may arise where Insurance was added to a loan, mortgage, credit agreement, holiday, vehicle purchase or other transaction without the customer giving informed agreement.

Possible warning signs include:

• the insurance premium appeared within the finance agreement without explanation;
• the customer was told the policy was compulsory when it was optional;
• the customer did not know that Insurance had been purchased;
• a pre-selected box was used to add cover;
• the cost was included within monthly repayments without being identified; or
• the customer was not told that interest would be charged on a financed premium.

Duplicate or Unnecessary Insurance

Insurance may be unsuitable where the customer already had equivalent protection, and the seller failed to consider it.

Existing protection might have been provided through:

• an employer’s sick-pay scheme;
• death-in-service benefits;
• another insurance policy;
• a packaged bank account;
• credit card travel insurance;
• home insurance legal expenses cover; or
• membership of a professional or trade organisation.

Duplicate cover does not automatically prove mis-sellin. Still, it may be relevant where the seller advised the customer and failed to establish whether additional Insurance was needed.

Mortgage Endowment Mis-Selling

Endowment mortgages were commonly sold as a combination of an interest-only mortgage and an investment policy intended to repay the capital at the end of the mortgage term.

A complaint may arise where:

• the investment risk was not explained properly;
• the policy was presented as guaranteed to repay the mortgage;
• the customer's attitude to investment risk was not considered;
• the policy was unsuitable because of the customer's age or circumstances;
• fees, charges and surrender penalties were not explained; or
• the customer was not warned about a projected shortfall.

Many mortgage endowment complaints are now subject to historic time limits. Insurers and advisers may have sent warning letters specifying a final date by which a complaint had to be made.

Anyone who believes an endowment was mis-sold should obtain advice promptly and retain all warning letters, policy projections and mortgage records.

Payment Protection Insurance

Payment protection insurance, commonly called PPI, was sold alongside loans, mortgages, credit cards and other borrowing to cover repayments following events such as illness, accident or unemployment.

Common allegations included:

• the customer was told PPI was compulsory;
• the policy was added without informed consent;
• the customer was ineligible to claim;
• important exclusions were not explained;
• the policy was unsuitable for a self-employed or retired customer;
• the cost and interest were not explained; or
• a high level of commission was not disclosed.

The general regulatory deadline for submitting new PPI complaints was 29 August 2019. Complaints made after that date are normally rejected unless exceptional circumstances prevented the customer from complaining in time or another specific exception applies.

A customer who previously submitted a PPI complaint should retain the firm's final response and any Financial Ombudsman Service correspondence.

Life and Critical Illness Insurance

Life and critical illness policies may be mis-sold where the cover did not reflect the customer's needs or where the seller failed to explain material restrictions.

Complaints may concern:

• insufficient or excessive cover;
• the wrong policy term;
• joint-life rather than separate policies;
• reviewable premiums;
• restricted definitions of critical illness;
• failure to place the policy in trust where this was part of the advice;
• replacement of a suitable existing policy without good reason; or
• failure to explain the consequences of cancelling earlier cover.

Income Protection and Accident Insurance

Income protection, accident, sickness and unemployment insurance should be appropriate for the customer's occupation, earnings and employment status.

A policy may be unsuitable where:

• the customer could not meet the definition of incapacity; employer payments or state benefits would have reduced
• benefits;
• the deferred period did not meet the customer's needs;
• the maximum benefit was inadequate;
• the occupation was excluded or incorrectly classified;
• the customer was not eligible because of their employment status; or
• important medical exclusions were not explained.

Packaged Bank Account Insurance

Packaged bank accounts may include travel, mobile phone, breakdown and other Insurance in return for a monthly fee.

A complaint may arise where:

• the customer was told the account was compulsory;
• the customer did not know a fee was being charged;
• the included insurance was unsuitable;
• age, health or travel restrictions made the insurance unusable;
• the customer already had equivalent cover; or
• the benefits and exclusions were not explained clearly.

Commercial Insurance Mis-Selling

Businesses may also receive unsuitable insurance advice.

Commercial disputes can involve:

• business interruption insurance;
• property and contents cover;
• public and employers’ liability insurance;
• professional indemnity insurance;
• cyber insurance;
• directors’ and officers’ liability cover;
• key-person insurance;
• marine and cargo insurance; and
• trade credit insurance.

A broker may be liable where it failed to understand the business, recommended inadequate limits, failed to arrange requested cover or did not explain a significant exclusion.

Commercial policies can be complex, and businesses should seek advice before renewing cover or accepting a claim that has been rejected.

Mis-Selling or a Rejected Insurance Claim?

Insurance mis-selling and claims handling are separate issues.

A mis-selling complaint concerns how the policy was marketed, advised upon or arranged. A claims complaint concerns the insurer's decision or conduct after a claim was made.

In some cases, both issues arise. For example, the insurer may reject a claim because of an exclusion that the customer says was never properly explained when the policy was sold.

Who Is Responsible?

The appropriate complaint may be against:

• the insurer;
• an insurance broker;
• a bank or lender;
• a financial adviser;
• a retailer or vehicle dealer;
• an online comparison or distribution business;
• an employer or membership organisation; or
• another intermediary involved in the sale.

The firm that designed the product will not necessarily be the same business that advised the customer or arranged the policy.

A solicitor can review the documents and identify which firm was responsible for the alleged failing.

What Evidence Should You Collect?

Useful evidence may include:

• the insurance policy and schedule;
• the policy summary and key information documents;
• the application form;
• a demands and needs statement;
• the adviser’s suitability letter;
• loan, mortgage or credit agreements;
• bank and credit card statements;
• sales illustrations and quotations;
• telephone recordings or sales transcripts;
• emails and letters;
• medical or employment evidence;
• earlier insurance documents; and
• any rejection or final response letter.

If documents are missing, the customer can ask the firm for copies of the records it holds. A data subject access request may also be appropriate, although some material may be withheld or no longer available.

How to Complain About Mis-Sold Insurance

The first step is normally to complain directly to the business responsible for selling or advising on the policy.

The complaint should explain:

• which policy is involved;
• when and how it was sold;
• what the customer was told;
• why the policy was unsuitable or misleading;
• what would have happened if correct information had been given;
• the financial loss suffered; and
• the remedy being requested.

For most insurance complaints, a regulated firm normally has up to eight weeks to issue its final response.

The Financial Ombudsman Service

If the firm rejects the complaint, makes an inadequate offer or fails to provide a final response within the required period, an eligible complainant may refer the matter to the Financial Ombudsman Service.

The Financial Ombudsman Service is independent and free for eligible consumers and businesses. It considers what is fair and reasonable in the circumstances, taking into account the law, regulatory rules, industry standards, and good practice.

A complainant does not normally need a solicitor or claims management company to use the service.

Time Limits for an Ombudsman Complaint

A complaint generally needs to be made within:

• six years of the event complained about; or
• three years from when the complainant knew, or ought reasonably to have known, that they had cause to complain, if that date is later.

After receiving a valid final response from the business, the complainant will normally have six months to refer the complaint to the Financial Ombudsman Service.

Different or additional deadlines can apply to mortgage endowment and PPI complaints. Exceptional circumstances may be considered, but a late complaint should not be assumed acceptable.

What Compensation May Be Available?

The aim of redress is generally to place the customer, as far as reasonably possible, in the position they would have been in if the mis-selling had not occurred.

Depending on the circumstances, compensation may include:

• repayment of premiums;
• repayment of interest charged on financed premiums;
• compensation for investment loss;
• the cost of replacement cover;
• payment of a claim that would otherwise have been insured;
• interest on financial losses;
• reasonable consequential losses; and
• compensation for distress or inconvenience in appropriate cases.

The correct method of calculating redress will depend on what the customer would probably have done if they had been advised properly.

Court Proceedings

Where an Ombudsman complaint is unavailable or unsuitable, it may be possible to bring a court claim based on:

• breach of contract;
• negligence;
• misrepresentation;
• breach of statutory duty where a private right of action exists;
• breach of an adviser's duty of care; or
• another applicable cause of action.

Court proceedings carry costs and risks and require legal evidence establishing liability, causation, and loss.

A regulatory breach may be relevant evidence, but it does not automatically mean that every claimant has a separate right to compensation through the courts.

Time Limits for Court Claims

Different legal claims are subject to different limitation periods.

A claim based on a simple contract will commonly have a six-year limitation period calculated from the date the cause of action arose. Negligence and misrepresentation claims may involve different starting points and rules.

Where material facts were concealed, a mistake was involved, or the claimant could not reasonably have discovered the problem earlier, the limitation period may sometimes be postponed.

Limitation law is complex. Making a complaint to an insurer or the Financial Ombudsman Service does not necessarily stop the court limitation period from running.

Claims Against Insurance Brokers and Advisers

An insurance broker or adviser should normally take reasonable care when identifying the customer's requirements, recommending cover, and placing the policy.

A claim may arise where the broker:

• failed to obtain the requested cover;
• recommended an unsuitable policy;
• failed to explain an important exclusion;
• completed an application inaccurately;
• failed to pass relevant information to the insurer;
• allowed a policy to lapse without warning;
• arranged inadequate limits of indemnity; or
• failed to advise about a foreseeable gap in cover.

It will usually be necessary to show that suitable Insurance was available and that the relevant claim or loss would have been covered if the broker had acted competently.

Claims Management Companies

A customer can normally complain directly to the firm and use the Financial Ombudsman Service without paying a claims management company.

A claims management company may charge a fee or deduct part of any compensation. Before appointing one, check:

• whether the Financial Conduct Authority authorises it;
• the fee or percentage that will be charged;
• whether VAT is included;
• what happens if no compensation is recovered;
• whether the customer can cancel; and
• what work the company will actually perform.

A solicitor may be more appropriate where the complaint is legally complex, involves a substantial commercial loss or may require court proceedings.

What Should You Do if You Suspect Mis-Selling?

You should:

• locate the policy and sales documents;
• identify who sold or advised on the insurance;
• write down what you remember being told;
• check the exclusions, eligibility rules and cost;
• calculate the premiums and other losses;
• submit a written complaint promptly;
• retain the final response letter; and
• obtain legal advice before a limitation period expires.

Do not cancel an existing policy without considering whether replacement cover is required. Cancelling life, health or income protection Insurance may leave you uninsured or make replacement cover more expensive.

How an Insurance Mis-Selling Solicitor Can Help

A specialist solicitor may:

• review the policy and sales documents;
• identify the responsible firm;
• assess whether the policy was unsuitable;
• calculate financial loss;
• prepare a formal complaint;
• advise on Financial Ombudsman Service proceedings;
• negotiate a settlement;
• assess limitation issues; and
• bring court proceedings where appropriate.

Find an Insurance Mis-Selling Solicitor

Insurance mis-selling disputes can involve financial services regulation, contract law, professional negligence and strict complaint deadlines.

Use Solicitors.com to find insurance mis-selling solicitors throughout England and Wales, or submit an enquiry through our Ask a Solicitor service.

Important: This guide provides general information about Insurance mis-selling in England and Wales. It is not legal or financial advice. Different court procedures and limitation rules apply in Scotland and Northern Ireland.