Survey reveals firms' concerns over potential 'legal loophole' for policyholders
The insurance industry faces growing problems over its inability to follow FSA guidelines on the suitability of advice given to customers, a consultancy firm has warned.
Andrew Wheeler, principal consultant at Huntswood, said: "The suitability of advice given is an important issue and [more than six months after GI day] the industry hasn't got the hang of it yet."
He added that the "problem" was likely to spin out of control.
Huntswood's survey of general insurance firms on FSA regulation revealed that one in three (31%) were most concerned about the issue of suitability of advice given to customers.
Wheeler said policyholders were being given scope to use the principle as a legal loophole to get claims paid.
As an example, he cited one case where the family of a man who fell to his death from a balcony while drunk.
They had sued his travel insurance firm. The family won the case because the travel insurer had not sold him a policy which would have covered the particular accident.
Wheeler said the trend had been picking up speed quickly.
"The courts will ask whether the firm has breached its regulatory requirements, and these cases will start to set a precedence. Judgments will start to form guidance by default," he said.
"It is best to be wise before the event to give yourself a competitive advantage."