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Determination
Case number | 974131 |
Financial firm | Matrix Planning Solutions Limited |
Case number: 974131 17 April 2024
The complainant was the client of a financial advisor who was an authorised representative of the financial firm. The complainant sought advice on reducing his life insurance premiums.
On 27 May 2019 the advisor recommended switching from life insurer C to life insurer T. The policies were commenced with life insurer T after the application form, including medical disclosures, were provided to insurer T.
On 8 November 2019 the complainant lodged a claim for prostate cancer with T. T declined the claim due to innocent non-disclosure of a slightly elevated PSA test.
The complainant says the Statement of Advice (SoA) recommending a switch of life insurance policies was not in his best interest because:
The advisor says he would not have recommended switching insurance if he had he known of the elevated PSA level and family history of prostate cancer
The complainant claims the loss of the trauma insurance benefit of $200,000 plus interest of $36,009.80 and income protection benefit in the sum of $40,000 plus interest of $6,898.79.
Yes. The advice was not in the best interests of the complainant due to the minimal benefit and the re-underwriting risk of switching policies.
No. The complainant’s failure to meet his duty of disclosure obligations resulted in the majority of the loss. The Panel takes the view that there is minor contribution to the loss by the advisor.
The outcome is fair because it takes into account the duties of each party under legislation, the facts of the matter and the contribution of each party towards the loss.
This determination is partially in favour of the complainant.
Within 30 days of being notified of the complainant’s acceptance of this determination, the financial firm will pay the sum of $12,000 to the complainant.
Yes. The advice was not in the best interests of the complainant due to the minimal benefit and the re-underwriting risk of switching policies.
The complainant has submitted that the advisor failed to act in his best interests.
Under s 961B of the Act, the “best interests duty‟ requires the adviser in providing personal financial advice to retail clients to take the following steps:
Section 961E of the Act requires that it would reasonably be regarded as in the best interests of the client to take a step if a person with a reasonable level of expertise in the subject matter of the advice that has been sought by the client, exercising care and objectively assessing the client's relevant circumstances, would regard it as in the best interests of the client, given the client's relevant circumstances, to take that step.
Section 961G goes on to say that the provider must only provide advice to the client if it would be reasonable to conclude that the advice is appropriate to the client had the best interest duty been met.
It is common ground between the parties and well documented that the complainant sought the reduction of his life insurance policy premiums. This was personal advice as it took into account the complainant’s objective.[1] This means, the advice was subject to the best interests duties.
The email exchanges between 26-27 March 2019 and the client services manager of the financial firm discussed obtaining requotes. The client services manager also specifically requested:
“If we move insurers is [complainant’s] health good?”
To which the complainant’s wife responded:
“Yes – does that mean he’ll do tests??”
The client services manager responded the complainant may need to do tests depending on the levels of cover applied for. The financial firm stated it would see if another insurer is more competitive and let the complainant’s wife know what will need to be done to apply.
The evidence is clear a reduction in premiums was an objective of the complainant and the purpose for contacting the financial firm. However, we have not received any evidence of a discussion with the complainant regarding the risk of narrowing the scope to this extent.
The Fact Find dated April 2019 records the goals and objects as reviewing the current sum insured amounts and reduce level of cover to reduce premiums life/TPD/Trauma/IP.
The complainant is recorded as a non-smoker and no health issues are recorded.
A later notation indicates the review for current sum insured amounts and premiums on life insurer C’s premiums.
The Fact Find contains information relating to income and expenditure but there is limited information on cashflow.
The Statement of Advice (SoA) dated 27 May 2019 considered retaining the current insurance with C, however the premiums were deemed too expensive. A comparison indicated a like for like saving of $1,650.36 with T (even if both policies had reduced cover) and the ultimate recommendation was to switch life insurers. A comparison table provided a list of the additional cover and benefits lost during the switch from C to T.
In reference to the complainant’s health status the SoA records it as ‘not disclosed’. Although it is acknowledged that the prior email representation had been made that the complainant’s health was ‘good’.
A summary of the material contained within the SoA relating to the complainant’s prior trauma and income protection insurance held with C and the recommended insurance to be held with T is contained below:
Life Insurer | Policy Sum Insured and Premiums |
Insurer C |
|
Insurer T |
|
It should be noted that the new sum insured would not cover the needs as assessed by the advisor. The SoA specifically references this saying:
It appears after conducting your personal insurance needs analysis that you wish to nominate your own sum insured amounts as you cannot afford the level of cover that you need to meet all of your goals and objectives.
The SoA outlines the loss of cover from the sum insured on each policy of insurance as well as the benefits gained.
The complainant says the Iress results (comparisons of life insurance products and policies) which noted that the policies of C were scored as superior to T’s policies, and were slightly more expensive. The complainant believes that a policy with C would not have required underwriting at all. The financial firm disagrees with this assertion noting that insurer C would have posed health questions and, if answered correctly, insurer C may have declined new cover or applied a loading.
The SoA provided the following warning in relation to the risk of switching insurance:
The SoA also provided the following statements in relation to replacing insurance:
The SoA provided confirmation of the risks of obtaining new insurance and the need to answer the disclosure questions for underwriting purposes. There are no file notes though which suggests that additional discussions regarding the risks of switching were had between the advisor and the complainant.
The complainant says the advisor was aware of his family history due to the familial connection between the parties. The complainant has also indicated a belief the advisor knew of his regular PSA check-ups. However, this does not establish the advisor knew the results and implications of those PSA check-ups.
Based on the affidavit material the discussions relating to health occurred during the application to T which would be once the recommendations of the SoA were accepted and in the process of being implemented.
We have reviewed the medical file notes of the PSA results relevant to a consideration of this matter and summarise those results below:
Since 2017 he had had mildly elevated fluctuating PSA and in his most recent blood test his free PSA is also mildly elevated
The material provided shows the first time the complainant received an elevated PSA reading was in 2017 which is likely why the complainant responded ‘No’ to a question relating to abnormal PSA level in the 2015 application form. In 2017 the medical notes suggest the PSA result was still within acceptable range for age which makes it possible the doctor provided reassurance of this nature to the complainant. We note there are no notations suggesting the complainant was referred to additional imaging or specialists for consultation. The PSA test from 2018 provided a PSA level of 3.25 which was within normal limits for the age range. This was the last PSA before the initial fact find for the insurance.
There is a gap between the Fact Find from April 2019 and the SoA on 27 May 2019 and it is during this gap that the elevated 2019 PSA level results are recorded, and a referral occurred. There is no evidence that the test results of 20 May 2019 were notified to the advisor prior to providing the SoA. Given this, we cannot conclude that the advisor was aware at the time of issuing the SoA that the complainant had abnormal PSA levels. The advisor cannot provide advice relating to factors of which he was likely unaware. Further, based on the financial firm’s submissions, the advisor would not have recommended switching life insurance products had he been aware of the elevated PSA levels.
Generally, if an individual has held a life insurance policy for more than three years, with no or limited exclusions to cover, then care should be taken before recommending switching to another life insurance provider. This is because as individuals age it is common for them to experience or develop medical conditions which will be required to be disclosed and which may lead to additional exclusions. Accordingly, care must be taken if providing advice to switch life insurance product providers.
It is clear that the complainant’s objective in seeking advice was to reduce policy premiums. The advisor has reviewed this objective and noted if cover is reduced then premiums could also be reduced. This suggest method of reducing the premiums was noted in the Fact Find. As noted above, the difference between C and T’s policy premiums was $1,650.36 per year.
The SoA did not discuss alternative means to reduce the premiums such as:
The SoA also records that both C and T’s premiums would be stepped premiums which means that they will increase each year. In our view, it is likely that the advantage of the initially lesser premiums of T would potentially be eliminated within a few years due to the nature of the stepped premiums.
Further, without a proper understanding of cashflow and assets, we do not consider that a properly informed discussion regarding affordability of the premium could occur.
Based on the information provided, it does not appear that the risk of switching insurance and potential loss of cover would be worth the $1,650.36 difference between the two premiums.
Whilst we note the SoA did contain statements of the risks, there is no evidence of further discussion relating to this risk with the complainant. If the risk had been fully explained to the complainant, then there ought to have been a record of this in the SoA. We also do not accept that a reasonable person in having the risks properly explained would accept it.
It is the panel’s view the appropriate advice in the best interests of the complainant would have been to retain the existing insurance and reduce the sum insured cover and/or increase the waiting period.
No. The complainant’s failure to meet his duty of disclosure obligations resulted in the majority of the loss. The Panel takes the view that there is minor contribution to the loss by the advisor.
Compensation for loss does not automatically follow a determination that the financial firm has breached the best interest duty. The onus is on the complainant to establish, on the balance of probabilities that the financial firm breached its duty, the complainant suffered a loss, and the breach caused the loss (causation).
In general, the application of the ‘but for’ test is sufficient to prove the necessary causal connection. This can be achieved by asking, would the complainant have acted differently and avoided (or reduced) the loss but for the financial firm’s wrongful act or omission?
The purpose of awarding compensation to the complainant is to restore her to the position in which she would have been but for the failure.
Section 21 of Insurance Contracts Act 1984 (ICA) outlines the requirements of an insured’s duty to disclose to an insurer. Before the relevant contract of insurance is entered into, every matter that is known to the insured that the insured or a reasonable person in the circumstances would know to be a matter relevant to the decision of the insurer to accept the risk and, if so, on what terms should be disclosed. The insurers will often ask specific questions of an insured to obtain information that is relevant to its acceptance of the risk and/or whether it will apply an exclusion. The duty of disclosure is a duty required of a prospective insured to the insurer. It is a separate process outside of the advisor duties and the advisor could not meet this duty for the complainant.
Applications for life insurance frequently require the prospective insured to complete medical questionnaires under the duty of disclosure. Those medical disclosure questions form part of the life insurer’s consideration of risk and terms.
If a person innocently fails to provide disclosure to questions asked of them, and the life insurer would not have been prepared to enter into the contract on any terms, then within 3 years after the contract was entered into the insurer may avoid the contract.[2]
The medical questionnaires completed by the complainant were subject to the duty of disclosure. We form this view as the application form containing the medical questionnaire contained the written notice explaining the duty of disclosure to the insured as required by s 22 of the ICA.
The evidence is that discussions took place during the completion of the applications for insurance.
The statutory declaration of ‘AC’, on behalf of the financial firm, states that no additional relevant health information was provided by the complainant other than the responses to all questions that were asked within the application questionnaire form.
The statutory declaration from the complainant states that the parties discussed the limitation of the question relating to any family member diagnosed with cancer prior to age 60 years. The complainant states he remarked that his brother had quite high PSA readings but never had prostate cancer. Further, that he had a slightly elevating and fluctuating PSA test result in the past but that on each occasion the PSA level had returned to normal.
The complainant’s statements to the advisor did not indicate that his last two tests for PSA revealed higher than normal PSA levels or that he had been referred to a specialist. The complainant’s statements did not indicate any ongoing investigation which might have required a response of ‘yes’ to at least one of the following insurance application form disclosure questions:
Any disorder of the kidney, bladder or genitourinary system including prostate disorders, urinary tract infections, kidney stones, blood or protein in the urine?
..
Apart from any condition already disclosed, do you plan to seek or are you awaiting medical advice, investigation or treatment for any other current health condition or symptoms?
The complainant however states that the representative of the financial firm asked general questions about his health and did not ask every specific medical question which was on the form. However, this is disputed by AC’s statutory declaration. Further, the complainant states he was not warned that his ongoing duty of disclosure went all the way until the insurance cover was in force. The statutory declaration of AC does not refute the statement from the complainant in this regard or refer to any process he undertook to specifically ensure the complainant understood the Duty of Disclosure.
Prior to insurance being commenced with T on 6 August 2019, the complainant was subject to the medical checks by life insurer T.
As part of this check the complainant met with a health professional sent by T. The complainant also signed and dated a Life Insurance Fast-Check Report on 5 July 2019 which included the Duty of Disclosure as part of the form. The complainant signature on the statement also acknowledged reading the Duty of Disclosure.
The Duty of Disclosure confirmed the requirements of the duty and the failure to meet the Duty of Disclosure. As part of the ongoing nature of the Duty of Disclosure the form stated:
You have this duty until we agree to insure you
The additional Duty of Disclosure notice provided to the complainant should have corrected a prior failure (if any) to properly notify the complainant by the advisor. The insurance had not been incepted at this point and the complainant’s general medical practitioner has generated a referral letter to a urologist for further investigation of the mildly elevated fluctuating PSA.
There is no evidence provided to suggest that the complainant did inform the health professional from T of the referral to a specialist.
The evidence of both parties suggests, and the panel accepts, the insurer T would not have accepted to insure the complainant on the same terms had it been aware of the ongoing investigation into the elevated PSA levels.
The complainant had been informed of his obligation to disclose up until the policy commenced but did not do so. The panel further accepts this failure to disclose was innocent and not fraudulent.
We acknowledge that the complainant only proceeded to apply for the alternative life insurance product as a result of the SoA received from the advisor.
Notwithstanding this, the complainant was still required to meet his duty of disclosure to the life insurer. The panel is of the view had the complainant disclosed the investigation of the elevated PSA level then the insurer would either have refused the risk or imposed exclusions for prostate cancer. In such a circumstance the complainant would have simply retained the policy with C.
We do consider that the complainant would have been covered for this condition under C’s policy based on his successful claim under the other retained insurance with C.
The failure of the advisor to provide advice that was in the best interest of the complainant is substantially mitigated by the complainant’s failure to meet his required duty of disclosure. However, the panel does not consider that the advisor is without any contribution to the loss suffered by the complainant, because the complainant would not have applied for the insurance with T if the SoA had not recommended it. In coming to this conclusion, we note the failure to disclose was a significant contributing factor to the loss and that the contribution of the advisor is substantially reduced
The panel considers $12,000, being 5% of the claimed loss ($200,000 for the lost trauma benefit and $40,000 for the income protection benefit), is a fair and reasonable compensation award taking into account the complainant’s and the advisor’s conduct.
We will not apply interest as the contribution to the loss is minimal and it is not appropriate to award interest.
The outcome if fair because it takes into account the duties of each party under legislation, the facts of the matter and the contribution of each party towards the loss.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. We have reviewed and considered all of the information the parties have provided.
While the parties have raised a number of issues in their submissions, we have restricted this determination to the issues that are relevant to the outcome.
Due to the nature of this complaint, we referred it to a panel for determination. The panel includes:
AFCA is not a court of law. We do not have the power to take or test evidence on oath, or to require third parties to give evidence.
When we assess complaints, we consider:
We give more weight to documents created at the time the events occurred. If there are no relevant documents, we will decide what most likely occurred based on the available information.
If there are conflicting recollections and these are evenly weighted, we may find that a claim cannot be established.
[1] See section 766B(3) of the Corporations Act 2001
[2] See section 29(3) of the Insurance Contracts Act 1984
