Financial Ombudsman gives examples of unacceptable insurance practices

Consumers of financial services have sent more than 356,000 appeals to the Financial Ombudsman Service (FOS) in the two years of its activity (from 1 June 2019 to 1 June 2021). In dealing with such a large number of cases, Financial Ombudsmen have noted cases of unacceptable practices, said Chief Financial Ombudsman Yury Voronin.

The Financial Ombudsman Service considers as unacceptable practices not only cases of direct violation by a financial institution of norms of legislation or instructions of the regulator, but also actions of financial institutions to include in the contract on the provision of financial services items that knowingly may lead to the inability to obtain what the consumer has reasonably expected when receiving information on the provision of the relevant service.

For example, sometimes when concluding an agreement, financial institutions keep silent about some important conditions for the consumer (for example, the amount of deductibles from the premium to be refunded), which are formulated in multi-page annexes to the agreement (insurance rules, insurance programmes) by repeatedly referring to other clauses and annexes. There are cases when the insurance contract contains a list of documents necessary to obtain insurance compensation upon occurrence of an insured event that are impossible or extremely difficult to provide.

According to consumer appeals to the Financial Ombudsman, it is in voluntary insurance that unacceptable practices and related disputes arise more often, as compulsory insurance is regulated by law in sufficient detail, while the legislator gives broad discretion to insurers in the development of contract terms and conditions for voluntary types of insurance.

In particular, the relevant practices are widely represented in travel insurance contracts. For example, the risk of damage to luggage is accepted for insurance in accordance with the terms of the contract. The insurance territory is the territory of all countries of the world outside Russia as well as its territory outside the 100-kilometre zone from the administrative border of the settlement which is the insured’s permanent place of residence. The consumer discovers damage to the luggage (suitcase) at the airport upon his return home and the airport administration has prepared a relevant report. However, it has not been possible to identify the airport where the suitcase was damaged (departure or arrival airport). As the damage to the luggage is discovered in the territory of the applicant’s permanent residence, which is not included in the insurance territory, the financial institution refuses to pay the insurance indemnity. In this case, the terms of insurance are worded in such a way that it is impossible to receive the indemnity for damage to luggage after it has been delivered to the carrier because it is very difficult to determine the location of the damage.

Another example relates to third party liability insurance under the overseas travel insurance contract. A client of the insurance company has taken out a relevant policy and needs it on holiday when the consumer was involved in an accident with a rental car and was the perpetrator of the accident. The car rental agreement provides for an amount up to which the applicant is solely liable for damages, which they reimburse to the rental company. The consumer claims these funds from the insurance company on their return home. However, the insurance company refuses to pay the claim on the grounds that the amount paid by the applicant for the damaged car is not called a deductible and therefore is not a deductible. However, according to the liability insurance contract, if this amount were specified as a deductible, the insurance payment would be due.

The Financial Ombudsman considered the refusal by the financial institution to reimburse the expenses incurred by the citizen to be unjustified because it was clear from the terms of the car rental agreement that the amount up to which the applicant was solely liable for damages was in fact a deductible, even though the car rental agreement did not explicitly state it as such.

It is not uncommon for consumers to have their claims refused by a financial institution because, for various reasons, they cannot justify certain expenses, whereas the insurance contract stipulates that they should be covered. Thus, to the Financial Ombudsman appealed a citizen who had suffered a serious injury while on holiday and needed expensive medical transport services: transfer from the scene of the accident to the hospital by helicopter. The insurance company did not reimburse the transport company’s invoice for the patient’s flight – the event was not included in the list of additional expenses to be covered by the insured event. The terms of the insurance contract stipulated that the additional expenses included those which were documented.

From the materials of the appeal to the Financial Ombudsman it follows that it was not the patient himself who decided to use the ambulance, but the employees of the competent authority who received the claimant’s emergency call, taking into account the seriousness of the injuries, the mountainous terrain, the distance to the hospital and the impossibility of transporting the patient in any other way. On this basis, the financial institution’s refusal to reimburse the costs in the form of an invoice for medical transport services rendered was considered unjustified by the Financial Ombudsman. At the same time, it should be noted that if the medical institution’s documents did not contain a note about the need to transport the claimant to hospital by helicopter, these expenses could not have been recognised as necessary.

Chief Financial Ombudsman Yury Voronin advises that consumers when concluding an insurance contract should study carefully its terms and conditions, especially the list of risks in case of which the insurance indemnity is to be paid. «One should also pay attention to the documents which ought to be used as a proof of the expenses incurred or damage suffered to be recognised as reasonable and necessary by the insurance company,» Yury Voronin recommends.

At the same time, consumers often find it difficult to understand the terms and wording given in the insurance policy set of documents, the Chief Financial Ombudsman continues. Therefore, more and more often consumers read customer reviews of an insurance company before applying for the service and give their preference to a particular company on the basis of these reviews.

However, as of 2020, consumers have another similar, but more informative source – the Financial Ombudsman Service’s report. This document provides information on complaints made by citizens against each financial institution in a calendar year. «Unlike the user feedback, the report issued in accordance with the law, contains summary information about appeals of consumers considered in a calendar year by financial ombudsmen and decisions made on them with indication of names of Financial Institutions in respect of which appeals were received. The report also contains information on execution by financial institutions of the Financial Ombudsman’s decisions, on appeals against those decisions and on the results of such appeals. We strongly recommend that on choosing a financial institution consumers should read the report posted on the FOS website,» Yury Voronin concludes.