Tuesday, 20 February 2018
Life Insurance Policies
I thank the Cathaoirleach for allowing this matter to be raised in the House. This long-standing matter came to my attention when a constituent came to me about a whole-of-life assurance policy he had taken out ten years previously when he was 80 years of age. It was a policy of around €100,000. When he reached 90 years of age, the policy was reviewed. By this stage, he had paid 1.3 times the value of the life cover into the fund. He was informed by the insurance company that if he did not continue to make annual contributions to this whole-of-life policy, it would have no value and the policy would die.
When he was buying the policy, his impression was that he would pay into it over several years and there would be an investment element to it. Effectively, it would come to a point where it would have an investment value which would link in with the life cover. In the main, these policies are held by people of a more mature age. People are under the misapprehension that they are buying an investment product with life cover. Instead, it would appear to have all the aspects of a rip-off. Suddenly, before they know it, it becomes purely a life cover policy whereby, if they do not continue to pay exorbitant premiums every year, their policy dies. Someone could have a life cover of €100,000 year but, if they lived to a ripe old age, could have paid €200,000 into the policy.
Will the Minister of State commit the Department to undertake a review around this area?In this particular case, he would have gone to the Financial Services Ombudsman but got no satisfaction of any degree.
There are three aspects. Where does the review stand, how does the Minister of State believe it can be addressed and what does he think of the Financial Services and Pensions Ombudsman's remit with regard to people having recourse to the Financial Services and Pensions Ombudsman, where substance would be placed over legal form? In reality, policies are being sold with all the benefits for the insurance company and all the losses and risks for the person being insured. Surely that is not fair.
These products are designed to cover policyholders for their entire lifetime or for as long as the policyholder wishes to continue to pay premiums. To decipher that, there is, in effect, no such thing as a whole-of-life policy in that the policy is reviewed every five years. That is the net effect of what is happening. A consumer who has made a formal complaint to a financial institution and is not satisfied with the outcome may go to the Financial Services and Pensions Ombudsman to have it investigated independently. The ombudsman is independent in the performance of his statutory functions. A role of the ombudsman is to investigate, mediate and adjudicate complaints about the conduct of regulated financial service providers. As the Senator may be aware, the Financial Services and Pensions Ombudsman Act 2017 which commenced on 1 January 2018 established the Financial Services and Pensions Ombudsman. The legislation provides the FSPO with various powers to determine jurisdiction of a complaint.
Complaints of conduct against a financial service provider must be about conduct which occurred during or after 2002. Although the sale of a product prior to 2002 is not a bar in itself to investigation by the ombudsman of conduct which occurred after 2002, it is important to note that the legislative provisions governing the power of the ombudsman to investigate such complaints are complex. Section 51 of the Act prescribes a period of six years for the making of a complaint to the FSPO that does not relate to a long-term financial service. Complaints about long-term financial services can be made to the FSPO within whichever of the following periods is the last to expire. One is six years from the date of the conduct giving rise to the complaint, so if one found out about this circumstance at a certain stage when someone was getting older and the premiums raised so much that it was obvious that the person could not continue to pay his or her premiums, it would be six years starting from that period. Another is three years from the earlier of the date on which the person making the complaint became aware or ought reasonably to have become aware of the conduct giving rise to the complaint. A third is such longer period as the ombudsman may allow where it appears to him or her that there are reasonable grounds for requiring a longer period and that it would be just and equitable in all the circumstances to extend the period.
It should be noted that the long-term financial service should not have expired or otherwise been terminated more than six years before the date the complaint is made. It should also be noted that the ombudsman must be cognisant of the provisions of section 52 of the Act which prescribe that he may decline to investigate a complaint where, in his opinion, the conduct complained of occurred at too remote a time to justify investigation. As I have stated, the ombudsman is independent and each complaint is dealt with on its own merits and there may be a number of aspects to this.
Officials in the Department of Finance are examining whole-of-life policies as they present, by their nature, atypical customer protection issues which may not become fully apparent for many years. This examination has only recently commenced. Once this examination is complete, the Department will provide technical advice to the Minister on whether legislative change should be considered. It will then be a matter for the Minister and Government to make policy decisions.
I thank the Minister of State. Based on my experience with these policies, I think legislative change will be required. These policies are being sold as whole-of-life. As the Minister of State said, there is a review every five years. An element which is not pointed out is that people, particularly older people, pay an exorbitant premium, with many taking out the policies, traditionally known as section 60 policies, to pay for inheritance tax on their deaths to ensure that beneficiaries are not caught by liabilities.Suddenly, they find themselves in a situation where the amount they have paid into the fund is far in excess of the value of the policy. Legislation must be introduced to provide for such situations. If people take out such policies which are deemed to be whole-of-life policies, they must get to a point where if they have paid an amount into the fund that is higher than the value of the policy, they should not be required to make further contributions.
I have met a number of people who have got caught up in these policies and cannot continue with them because of the premia being charged. For example, there are people with policies worth less than €100,000 who have paid in over €100,000 and the premium is now €10,000 or €12,000 a year. There is a substantial case to be investigated and my Department has recently started to look into the matter. It has to consult stakeholders. I tried to get a date on which they would come back to me on it. I did not get one, but I am requesting that it be done before the summer in order that these matters can be brought to a conclusion and decided on by the Financial Services and Pensions Ombudsman. I have an issue with the mis-selling of products. I am not saying this is the mis-selling of a product, but none of the people I have met knew or understood that every five years there would be a review and a ramping up of premia as they got older. The difference in premia for people aged between 75 and 80 years and those between 80 and 85-----
It is something we want to try to pursue. I have to admit I am annoyed at this behaviour. For people who are mis-sold a product, the Financial Services and Pensions Ombudsman. That is the place where we should be able to bring the matter to a conclusion. If legislation is required, I assure the Senator I will not be slow to bring it forward.