The complaints ombudsman has deemed a financial adviser responsible for a “minor” portion of losses suffered by a client who took his recommendation to switch to a lower-premium life policy.

Most of the loss was caused by the client’s failure to meet his disclosure duty, the Australian Financial Complaints Authority says.

The client approached the adviser, an authorised representative of Matrix Planning Solutions, about reducing his life premiums, and in May 2019 the adviser recommended switching to another insurer.

In November 2019 the client lodged a claim for prostate cancer, which was rejected because of an innocent non-disclosure of a slightly elevated reading from a prostate specific antigen (PSA) blood test. 

He blamed the adviser for failing to act in his best interests when recommending the change to the new insurer. He said the adviser knew about his PSA results and family history of prostate cancer, and that a prudent adviser would have recommended staying with the previous insurer and cutting the premiums by reducing the sum insured.

The client wanted compensation for the loss of a $200,000 trauma insurance benefit, plus interest of $36,009, and a $40,000 income protection benefit, plus interest of $6898.

But AFCA says the client’s failure to meet his disclosure obligations resulted in most of the loss.

“The panel takes the view that there is minor contribution to the loss by the adviser,” its ruling said. “Had the complainant disclosed the investigation of the elevated PSA level, then the insurer would either have refused the risk or imposed exclusions for prostate cancer. In such a circumstance, the complainant would have simply retained the policy with [the previous insurer].”

AFCA agrees the advice was not in the client’s best interests due to its minimal benefit and the re-underwriting risk of switching policies.

While the new policy cost about $1650 less a year, AFCA says if someone has held a life insurance policy for more than three years, with no or limited exclusions, then care should be taken before recommending switching to another provider.

“This is because as individuals age, it is common for them to experience or develop medical conditions which will be required to be disclosed and which may lead to additional exclusions,” AFCA said.

The authority says the two policies had stepped pricing structures, meaning rates would increase every year.

“In our view, it is likely that the advantage of the initially lesser premiums of [the new insurer] would potentially be eliminated within a few years due to the nature of the stepped premiums. It is the panel’s view the appropriate advice in the best interests of the complainant would have been to retain the existing insurance and reduce the sum insured cover and/or increase the waiting period.

“The failure of the adviser to provide advice that was in the best interest of the complainant is substantially mitigated by the complainant’s failure to meet his required duty of disclosure.”

AFCA has awarded the client compensation of $12,000, which is 5% of the claimed loss.

Click here for the ruling.