Legal Information Centre

28 July 2008 by Mary Heaney


Rising levels of insurance fraud have made insurance companies more circumspect about paying out on claims and more selective about who they will offer insurance to

The UK insurance industry is worth some £40bn to the British economy and, according to the Association of British Insurers (ABI), insurance companies pay out £57m every day to settle general insurance claims.

However, there are plenty of people who believe that the industry does not pay out enough and figures produced by the ABI show that in the last five years, the average profit margin on UK insurance policies has risen from 3.5% to 19%. Meanwhile, rising levels of insurance fraud have made insurance companies more circumspect about paying out on claims and more selective about who they will offer insurance to.

Unsurprisingly, two of the the most common causes of complaint against insurance companies are refusal or withdrawal of cover and refusal to pay all or part of a claim.


In the latter case, the first step is to check the wording of your policy to make sure that your claim is not specifically excluded from the policy. For instance, standard household insurance policies rarely cover every eventuality, even when a policy describes itself as 'all risks'. For example, accidental damage may not be covered as a matter of course and claims may be rejected if items have been taken outside the home. This is a particularly common situation with critical illness policies, where the list of medical conditions that are covered is tightly defined and other critical conditions will not give rise to a claim.


Since 2005, the insurance industry has been regulated by the Financial Services Authority and disputes arising between consumers and insurance companies have come under the remit of the Financial Ombudsman who will attempt top mediate between you and the insurance company and can also formally investigate your claim and make a binding order against the insurance company. The Ombudsman's service is free and straightforward – you shouldn't need a lawyer or claims company to represent you- and does not prevent you from taking the bank to court if you fail to convince the Ombudsman of your case. However, the Financial Ombudsman will only hear complaints after you have had no luck with the insurance company's own complaints procedure.


There are, however, circumstances (for instance taking action against a third party insurer in a motor accident or where the insurance policy is written overseas) and where the Ombudsman can't or won't help, than the last resort is legal action. For relatively simple claims below £5000, you can use the small claims court and may not need legal advice, but for higher-value or more complex claims you will require the services advice of a solicitor. The solictor can advise about the practicalties of using alternative dispute resolutuion techniques, such as mediation, as a precursor or alternative to going to court, and, most importantly, give you the benefit of their experience on what a reasonable settlement might be. Litigating is rarely cheap, however, (link to funding legal advice) and going to court carries the risk of being liable for the insurance company's legal costs if you lose.


One other issue that generally falls outside the Financial Ombudsman's jurisdiction is refusal of cover as it cannot adjudicate on the business decisions of regulated companies. Other remedies in this respect are limited but you may be able to make a claim under discrimination legislation if you feel you can prove you have been unfairly treated on grounds of race, disability or sex (although insurance companies can legally offer different premiums based on gender) although insurance policies are specifically exempted from the recently introduced age discrimination legislation. Insurers can also defend themselves against claims on any of these grounds if they have sufficient statistical evidence to back them up so advice from either a solicitor or Citizen's Advice Bureau is essential before making a claim.


In all circumstances, claiming against an insurance company is often a slow and frustrating experience, so it will almost always pay to be wise before the event. Check the wording of policies (especially critical illness and income protection policies) carefully and do not assume that all apparently similar policies cover the same things. The golden rule when taking out insurance policies is to truthfully inform your insurer of as much potentially relevant information as possible when you take out the policy which will significantly reduce their wriggle room in the event of a claim.

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