In an unusual case, a complaint was raised with the Financial Services Ombudsman by a financial adviser, Mr H, on behalf of his clients, Mr and Mrs S.
The complaint centres on Zurich allegedly changing or ignoring the terms and conditions of the whole-of-life assurance policy and failing to offer clients fair renewal terms, including retaining the existing level of cover at a reasonable price.
Mr H was a tied representative of a business that was later acquired by Zurich. He originally recommended the policy to Mr and Mr S on that basis that it would offer protection against future inheritance tax liability.
He also recommended that they take the policy on a maximum cover basis, as they could convert this to a lifetime protection plan on a standard cover basis in future.
A 20-year review of the policy by Zurich in 2016, however, unfairly changed the terms and conditions, Mr H claimed.
Policyholders disadvantaged
The case was passed to an adjudicator at the Financial Ombudsman Service, who found no evidence that Zurich or the predecessor business had ever offered the option of converting the policy in this way.
Despite admitting to some concerns about the recommendation to take out a policy on a maximum cover basis if it was intended for IHT protection, the adjudicator was unable to consider the issue of suitability, as it didn’t form part of the complaint.
Mr H disagreed with the findings, saying that the plan provided a base sum (on a maximum cover basis) with the advantage of being able to secure a future level of cover that would prove cheaper than it is was taken out at a later date.
He added that it was “outrageous” that Mr and Mr S, and other clients, should be asked to pay a higher premium for cover on a reviewable basis than they could get with another provider on a guaranteed basis.
“There is nothing in the terms which permits Zurich to disadvantage policyholders as a result of changing underwrites,” Mr H argued.
Clients would owe Zurich
The case was then passed to an ombudsman who stated that he had “taken seriously [Mr H’s] evidence that he did mislead them about the nature of this policy and, according to him, as a result of Zurich’s flawed advice to its representatives at the time”.
The ombudsman agreed with the adjudicator.
He found that there was insufficient evidence that Mr and Mrs S suffered as a result, even if Zurich did fail to fully explain these policies to its advisers.
Again, as the complaint did not centre on the issue of suitability, the ombudsman did not consider it.
“Even if another business is able to offer a more competitive quote, this does not mean Zurich has done anything wrong,” the ombudsman wrote. “I am also satisfied that Zurich was entitled to move Mr and Mrs S’s policy from a maximum to a standard cover basis when one of them reached 65.”
He added: “I accept that the adviser may not have made this clear to them at the outset and that they may have assumed they could increase their premium, without medical underwriting, to avoid a reduction in the cover.”
The ombudsman said that Mr and Mr S would have had to pay a considerably higher premium over the past 21 years, which they had said they were not in a position to do or didn’t want to do at outset.
“If I were to consider upholding their complaint on this basis, I would need to instruct them to pay Zurich the premium difference throughout this period in order for their plan to have a sufficient investment pot to pay for higher cover going forward without medical underwriting.”
Without performing a full calculation, he estimated that the cost could easily run into the tens of thousands of pounds.
“Overall, while I have concerns about what Mr and Mrs S were told at the outset, I do not believe there is sufficient persuasive evidence to justify upholding this complaint.”
