The Financial Ombudsman explains the reasons for refusals to pay out smartphone insurance indemnities
The most common complaints to the FOS from consumers of financial services for Mobile Phone Insurance are those against the refusal to pay out insurance indemnity, while less often consumers complaint due to the insurance company’s failure to meet payment deadlines, said Financial Ombudsman Svetlana Nikitina.
“In recent years, with the growing popularity of smartphones, interest in the insurance of these devices has also increased, which is of particular importance when people buy expensive phones, the failure of which can be very costly in terms of repair. Financial companies are expanding the range of offers for this type of insurance. However, it is not uncommon that a dispute arises between an insurance company and a mobile device insurance policy client, mainly related to the insurance company’s refusal to pay out insurance benefits. As a rule, the amount of claims on such requests does not exceed 50,000 roubles,” Svetlana Nikitina says.
A noticeable part of the disputes is related to the fact that the insurance contract provides for an unconditional franchise (a fixed value of loss which is not paid by the insurer). For example, the sum insured in the smartphone insurance contract is 50,000 roubles and the unconditional deductible is 5,000 roubles. In the event of an insured event, if the loss does not exceed 5,000 roubles, the insurance company does not have to pay out the money to the consumer. If the loss, for example, is 7,000 roubles, the insurance company is obliged to pay 2,000 roubles to the consumer, and the rest falls on the consumer’s shoulders, as this is stipulated in the contract. And if the contract provides for the repair of a broken telephone, the consumer has to pay this amount to the repair shop. “Financial institutions often point to the consumer’s failure to comply with the obligation to pay an unconditional franchise stipulated in the contract or insurance rules as the reason for the refusal,” Svetlana Nikitina explains, and adds that another common reason for an insurance company to refuse payment is the failure to provide a full set of documents.
Quite often financial institutions refuse to pay insurance indemnity, because the declared event is not recognised as an insured event. For example, internal failure without external damage, or mechanical damage to the phone by an adult member of the policyholder’s (beneficiary’s) family.
Refusal to pay the insurance indemnity, which in the Financial Ombudsman’s opinion is justified, is also due to the fact that the consumer has not provided documents confirming the occurrence of the insured event. The list of such documents is established in the insurance contract or the insurance regulations.
“In the examples given, the refusal to pay out the insurance was lawful, so consumers need to read the terms and conditions of the insurance very carefully, and demand explanations from managers if there are any questions when drawing up the contract,” Svetlana Nikitina says. She recommends that attention be paid first of all to the list of exclusions from insurance coverage: what specific events are not recognised as insured events under the insurance contract, and in which cases the financial institution is entitled to refuse to pay the insurance indemnity.
“The list can be so wide that it is unlikely to count on any possible payment, and if an event is recognised as the insurance event, the payment is often made at the minimum amount, since the sum insured can be reduced to 70% of the smartphone value during the first year of its use. Such ‘lossless insurance’ is, in our opinion, unfair practice. Improving insurance rules to exclude such consumer risks and establishing clear and understandable insurance rules is not the only task the Financial Ombudsman Service has to perform for this type of insurance. Of course, we will do this work together with the Bank of Russia and the All-Russian Union of Insurers,” Svetlana Nikitina emphasises. She advises that consumers carefully study the rights and obligations of the parties under the mobile device insurance contract.
“However, when considering complaints from citizens, in addition to legitimate refusals to pay insurance for smartphones, we also note violations of the terms of contracts, or even regulations, by financial institutions. For example, there are cases where the company has demanded payment of a franchise before the repair or before payment of compensation, and this condition was not stipulated in the contract and the insurance regulations,” Svetlana Nikitina continues.
The Financial Ombudsman also considered cases when the company, in the course of settling the loss, informed the consumer that the total loss of the smartphone had not occurred and compensation would be made in accordance with the rules to compensate for ordinary damage, not for total loss. At the same time, at the Financial Ombudsman’s request, the financial institution informed the FOS that the device had been completely lost. Obviously, in the event of total loss, the procedure for settling the dispute between the parties is slightly different from that provided for a small failure (including the consumer’s performance of the obligation to pay a franchise), and the insurance indemnity should be greater.
Another case of misconduct is related to the fact that a financial institution refused to pay compensation to a consumer due to the fact that the mobile phone had not been identified. “At the same time, based on the analysis of the documents provided by the insurance company, it has been established that the serial number of the phone was recorded by the service organisation authorised by the insurer and therefore the damaged property was identified. In that case, the refusal to pay the insurance indemnity was deemed unjustified,” Svetlana Nikitina concludes.