Insurance Claims Services Blog

In a remarkably frank or careless admission the Financial Ombudsman Service (FOS) has now actually openly stated it exists solely for the benefit of the financial services industry.

Clause 2.1 (a) of the new 2010 FOS Constitution states:

“The objects of the Company are to establish, maintain and promote a dispute resolution scheme for the Industry to be known as the ‘Financial Ombudsman Service”.

It should be noted that the consumer, the insured and/or the public are not intended to be the beneficiaries and that being the case it is little wonder there so many glaring examples of pro-industry bias that remain unanswered.

We have repeatedly stated that the tail appeared to be wagging the dog, but from this new quite blatant announcement there is not even a dog - just the same old tail.

In all there are eleven Clauses under the ‘Objects’ of the Constitution yet nowhere is there any mention at all of the consumer or public.

The Australian Oxford Dictionary defines ‘ombudsman’ as:

“official appointed to investigate individual’s complaints against public Authorities”

but from the above Constitution Objects it is now clear that the intended role of FOS is not to act as proper Ombudsman for the individual but to protect the interests of the very industry it purports to investigate.

Winds of up to 135kph at Byron Bay in May did not cause damage to a cedar wood shingle roof according to Shannons Insurance.

Their inspector turned up a month later and stated the wrecked roof was in that condition before the storm. Shannons have been asked if they are saying that not one shingle was damaged or dislodged by the fierce weather and they say their answer is ‘yes.’

It is almost unbelievable that an insurer should adopt such an attitude and the claim will now go to the Financial Ombudsman.

Watch this space.

A new exclusion has appeared on motor policies issued by NRMA and RACV. Quietly tucked away on page 31 of an 88 NRMA policy booklet and page 69 of an 80 page RACV wording is a clause reading:

“We may refuse a claim, cancel this policy, or do both if at the time of the incident your vehicle was being driven or was attached to a vehicle being driven in a manner which resulted in a deliberate exposure to any wilful or reckless act or exceptional danger”.

This clause is outside the motor policy wording prescribed by law. The law requires an insurance company to notify a prospective customer in writing that their policy contains an unusual provision - but how many people have been so warned?

Moreover the insurance company itself has the power to decide whether or not there was deliberate exposure or reckless act. Most motor accidents are the result of thoughtless, and sometimes stupid and/or reckless driving, but now the consumer is faced with an exclusion which specifically narrows the cover.

Have a look at your NRMA or RACV motor policy and ask yourself whether you were in fact warned in writing of this restriction, and if you weren’t ask your insurer why not. There is far too much going on in the insurance industry which is less than frank and open, and it is high time such tactics were brought to the consumer’s attention. The government will take no action, but this site will expose such issues.

Meegan Johnstone, the owner of a small car hire firm, suffered fire damage to three of her eight vehicles. The insurer, a subsidiary of Lumley General Insurance, denied liability accusing her of fraud but would not say why.

She took the case to the Insurance Ombudsman. The insurer wrote to the Insurance Ombudsman asking them not to consider her claim because “their position would be prejudiced”.

The Insurance Ombudsman replied to Meegan Johnstone, saying:

“The Service has jurisdiction to deal with disputes between insurance companies and consumers with respect to personal lines general insurance. Rental car fleet insurance is not one of the insurance products that fall with the scope of the Service’s Terms of Reference”

This reply was totally untrue and was in fact a pack of lies because their Terms of Refernce DID make provision for such a small business - so why and how did such a letter come to be written?

We wrote to the then Ombudsman, Sam Parrino, but he would not reply.

We then wrote to the Panel Chair, Peter Daly, who did reply but refused to address the question.

We have now written to the new Chief Ombudsman, Colin Neave, but he too will not answer the question and instead dodges around the issue. There is no apparent reason for this claim being avoided - which of course helps the insurance company - other than that of deliberate bias to support the insurer.

This article is being copied to Colin Neave at the Financial Ombudsman Service, and we now publicly invite him to provide a genuine explanation. This is documented evidence that MUST be explained - the consumer deserves nothing less. So, Mr Neave, will you now let us have the explanation that is so long overdue?

Every motor insurance policy in Australia carries an exclusion saying that cover does not apply unless the driver has a current driving licence. In 99% of all cases that exclusion cannot be enforced because the Insurance Contracts Act says an insurer cannot invoke such a clause unless it can prove its position was prejudiced. In other parts of the world motor policies state that a current licence must be held or have been held because if a licence has expired by a week or a month it makes no difference to the ability to drive.

This is quite clearly an attempt by the insurance industry to evade claims, knowing that the general public are not aware the wording cannot be enforced. We have encountered several such cases.

It would be a simple matter to change the wording, thus making the position clear and fair for both insurer and insured. This Company has attempted to get the Insurance Council of Australia to act but they say they cannot intervene in the wordings of individual insurance companies. This excuse doesn’t hold water because they have publicly made recommendations for an industry-wide flood wording, so if they could act on one type of cover they could on another; obviously they are acting in the interests of their members.

So - pass this around. This is sharp practice, but the more people are aware of it then the less chance there will be of an insurer getting away with this scam. Times are changing and the consumer is entitled to be warned of these little tricks.

The insured in this case was Warren Thorley of Sydney, the insurer, GIO. Serious fire damage was sustained by the Thorley’s private house, their documented repair bill totalling $112,094. GIO would offer no more than $55,590. The matter was eventually taken to FOS under their previous name of Insurance Enquiries & Complaints (IE&C) who calculated that GIO should pay $102,726, which slightly lower amount the insured accepted. The IEC Determination No was 298.10.6708.

In view of the unnecessary delay in obtaining this final figure the insured was entitled to Interest for the period involved on the additional amount of $47,136 as laid down by the Insurance Contracts Act 1984, and Interest amounting to $6,706 had also been claimed in the submission to IE&C. The liability for Interest was quite clear.

IE&C wrote to GIO asking them the following:

“Mr & Mrs Thorley have also claimed interest on the total sum payable by your office to them. Is your company agreeable to paying any and what interest to the claimants?

In other words IE&C, who should have been directing and controlling GIO were actually asking them “would you like to pay interest?” It was as blatant as that. This was akin to a judge saying to a convicted accused “would you like to go to prison”.

Not surprisingly GIO replied to IE&C as follows:-

“The GIO have no desire to pay any interest on this claim”

When the final Determination was produced, it concluded by stating:

“The Panel does not propose to award interest on this sum”

The Panel Chairperson was Peter Hardham.

However the chickens finally came home to roost in this murky saga when the claim for Interest was taken to the NSW Fair Trading Tribunal, by which time the entitlement to Interest had risen to $7,782.70. Upon receipt of the insureds claim, but this time through the Fair Trading Tribunal, GIO agreed to settle the claimed amount immediately, writing to the insured and saying:

“GIO will meet payment of the amount of interest claimed by you in the sum of $7,782.70”

This about-turn by GIO was relayed to IE&C, requesting their comments but there was no response.

All of the above is documented. Was this impartial claims adjudication?

Although this is not mentioned anywhere in their Terms of Reference, on their website nor in any of their brochures publicising the service, the FOS General Insurance division demand total secrecy if they are to consider a complaint from a consumer; they require confidentiality to protect the identity of the insurer.

This is cause for serious alarm considering that the FOS was established solely to protect the interests of the consumer.  This requirement is only revealed when a consumer actually approaches FOS, only then are they told of the requirement of an undertaking saying:

“I shall not publish or disclose to any third party the Detrmination of the Service in a form that discloses the identity of the member without its prior written consent”

The word ‘member’ refers to an insurance company and that word itself questions the impartiality of FOS.  They should be adjudicating on the insurance industry from a totally independant standpoint and that they use the word ‘member’ indicates an unhealthy relationship that is pro-insurance industry but kept under wraps behind a veil of secrecy and a refusal to answer queries.  Two thousand years ago the Romans had a phrase for this - ‘Quis custodiet ipsos custodes’ - who will police the police?

The secrecy demand is carefully re-enforced again by FOS after a Determination is produced when the consumer is told:

“You are reminded of your agreement with us not to publish or disclose the Determination to any third party in a form that discloses the indentity of ABC  insurance without its prior written consent”

The reason for this is quite clear - the insurance companies - the very industry who’s activities FOS was established to control are in fact controlling the FOS - otherwise why the demand for secrecy?  They will not allow FOS to intervene without this protection and this is the reason why this requirement does not appear officially, anywhere, until an individual consumer requests help.  The tail is wagging the dog.  For comparison purposes we have asked the Financial Ombudsman Service in the UK whether they impose a similar secrecy requirement and we have been told that consumers there are quite free to reveal anything - so why not here?

The FOS appear to be acting outside their Terms of Reference and as such any undertaking is meaningless and can be ignored.  In the coming weeks we shall be examining a whole range of FOS Determinations and will be publishing full details and names of all parties involved.  Times are changing, the public are entitled to expect full transparency and to be able to scrutinise and consider each matter in an open fashion.

There is growing concern and evidence that the insurance arm of the Financial Ombudsman Service (FOS) is frequently pro insurance company.

We have a number of documented instances where this bias is evident but in every case we are unable to obtain any explanation from FOS who merely maintain a frosty silence.  This is just not good enough.

Ostensibly, purportedly, FOS was establshed to provide support for the consumer not a quiet escape hatch for the insurance industry.

Watch this site.  Over the coming weeks we shall be detailing various cases where questions have been asked but no answer has been forthcoming.