Long-term care insurance: mis-sold policies

Types of complaints we see

Reviewable premium and benefit levels

Customers complain to us that:

• they didn’t know their long-term care insurance (LTCI) policy was reviewable
• the cost of the premiums to maintain the cover has become unaffordable
• the value of the cover is worthless due to reductions in benefits after a policy review

Policies often include wording like ‘lifetime care’ and ‘funding for life’, which customers can find misleading. They may believe that once they’ve paid a single premium to the insurer, then nothing more will be due for the duration of the policy.

But because investment returns haven’t been as high as expected when many of these policies were sold, customers have often had to:

• pay higher premiums to maintain the level of benefits they want
• accept lower benefits, which may not be enough to cover the care they need

Activities of daily living (ADLs) not properly explained

Insurers usually only pay if the customer can’t carry out a specified number of defined ADLs. The number and definitions of these ADLs will be in the insurance policy. We see complaints from customers who say the ADLs weren’t explained to them.

What we look at

Reviewable premiums

We need to be satisfied that the insurer clearly told the customer that it would review the premiums and benefits. We’ll look at all of the documentation available from the point of sale including the:

• product brochures or promotional literature
• information recorded by the advisor in the fact find about the customer’s needs
• ‘reasons why’ letter from the advisor to the customer explaining the recommendation
• letter sent to the customer when the plan started, as well as the policy summary and policy document

Activities of daily living

We’ll want to know that the insurer clearly told the policyholder about the number and definitions of ADLs at the point of sale. We’ll look at:

• the information given to the customer, like product brochures, promotional literature, the ‘reasons why’ letter and policy summary
• whether the information clearly explained what ADLs are and which ADLs the customer would need to meet

If the ADLs weren’t clearly explained in the available documents, we might decide the insurer mis-sold the policy.

Putting things right

For insurance mis-sale complaints we’ll usually ask you to treat the policy as if it had never been sold. We’ll say you should:

• cancel the policy from the beginning and refund the premiums paid by the customer
• add simple interest at 8% a year from when each premium was paid until the settlement is paid

If the sale was made by an independent financial advisor or an insurance broker, it won’t be possible for them to cancel the policy and refund the premium. Instead, we’ll ask them to pay compensation of an equivalent amount.

This outcome may not be in the customer’s best interests if their physical condition has deteriorated to the extent that they may be able to claim benefit at some point in the future. In this situation, we’ll discuss all of the options with the customer before recommending the cover is cancelled.

Resources

We use the following rules when dealing with these types of complaints:

• The Insurance Conduct of Business Sourcebook (ICOBS)