Claims management companies are responsible for driving up complaints about whole of life policies from consumers who simply do not understand the product, the Financial Ombudsman Service has said.
Complaints about whole-of-life policies have been going down for the past three years and look set to go down again this year if trends continue, according to Fos figures.
But complaint numbers are relatively high compared to uphold rates - which a spokesperson for the Fos attributed to claims management companies referring cases to the Ombudsman service which stand no chance of success.
She added: “We’d been highlighting for a number of years that the majority of complaints we see about whole-of-life policies are from people who don’t understand how the policies work.
“So we told financial businesses their sales processes and literature needed to be clear so consumers understood what they were getting in to from the beginning.
“This has led to improvements in sales across the industry, which has led to our lower uphold rate.”
Complaints about some older policies sold before the improvements were made are still being lodged, the spokesperson said.
According to the last full year of Fos data, complaints about whole-of-life policies were upheld 23 per cent of the time.
There were 1,587 complaints about whole of life policies during 2014/15 and 1,808 during 2013/14.
In 2012/13 there were 2,239 complaints, although this was a spike from the year before when there were only 1,828.
In the period between April and December 2015, the Fos received 1,128 gripes from consumers, and if they continue at their current trend, then this year will see 1,504 complaints.
Life insurance policies hit the headlines this week, as it was claimed more than 10m people could have their life cover slashed - by up to 70 per cent for some - when old-style products taken out over the last 20 years are reviewed by the provider.
Alan Lakey, of Hertfordshire-based Highclere Financial Services, said he was aware of some instances where a policy has been reviewed and the cover cut by around 70 per cent.
“Flexible whole-of-life plans were quite attractive, but the drawback is that as you get older the cost goes up and the reviews become more frequent, so people can no longer afford the plan or they save by reducing the cover.
“If someone took out a plan aged 30 it would only become evident there was maybe a problem when they were 50, but they will have forgotten the adviser said the plan will be reviewed.
“What you should do depends on the health of the person covered. If your health has deteriorated then the last thing you would want to do is get rid of it, because you could be uninsurable, but some people take the plan out to cover a mortgage that no longer exists.”
Malcolm Tarling, a spokesman for the Association of British Insurers, said insurance products vary on price and cover so customers should ensure they get the right product for their circumstances.
“Insurers and financial advisers will clearly explain terms and conditions when a customer is buying a policy, ensuring they understand factors that could impact on the value of the sum insured.
“Benefits for products such as whole of life cover are largely dependent on investment returns, which have been impacted by the low interest environment. Any changes to policies should be discussed with the customer, so if the benefit or premium needs to change, this will suit the individual’s circumstances.”
