The Australian Financial Complaints Authority (AFCA) flagged the importance of providing accurate information to insureds at a recent member forum for the life industry.

Senior Ombudsman Vicki Carter shared a case related to misleading conduct in which an insurer failed to give the correct information to a complainant who called to ask if he needed to cancel his life and loan repayment policy since he had sold his property.

The man was told on two occasions that the policy remained in-force and did not need to be cancelled, when in fact it should have been terminated. The policy was attached to his loan and, under the contract terms, cover stopped once the mortgage account was closed, which the complainant had done on September 21 2021.

The insurer realised in March last year that the policy should have been cancelled. It wrote to the complainant retrospectively cancelling the policy and refunding premiums with some interest attached.

But the complainant wanted his insurance reinstated. He has been receiving monthly benefits under the life policy for a claim he made in February 2022 after he was diagnosed with a cancer-like condition.

“So, what did AFCA decide and why? We accepted that the insurer had made a misrepresentation and that the complainant had relied on the misrepresentation to his detriment,” Ms Carter told the member forum.

She says AFCA’s usual approach to awarding compensation around a claim for misleading conduct is not to make the misrepresentation come true.

“However, in the circumstances of this complaint, the ombudsman did not think the amounts paid by the insurer adequately compensated the complainant. He was left without any insurance cover. And given the seriousness of his medical condition, he’d probably be unable to obtain any life insurance in the future,” Ms Carter said.

She says the case shows the potential consequences for an insurer when incorrect information is given to an insured.

“AFCA expects insurers to ensure their people, including their agents, are trained and monitored and don’t give incorrect information to an insured,” Ms Carter said.

“Equally, AFCA expects insurers, as the drafters of the policy, to help people who contact them to ask about the policy terms and how the policy works. Insurers should be able to do this. We do recognise all the great work that insurers do. We know it is hard. We know it is challenging.

“We know that some of these policies are not necessarily straightforward and claims can be really difficult. However, not only are there potentially serious consequences for an insurer that doesn’t get this right, but there can be devastating consequences for your customers too.”