Out-Law News 2 min. read

Pet insurance contract terms vague and potentially detrimental to customers, FSA says


Three insurance companies have agreed to adopt new terms in their pet insurance contracts after the financial service regulator determined that "vague" terms previously used may have been unfair to consumers.

The Financial Services Authority (FSA) said that Direct Line Insurance Company Limited, Churchill Insurance Company Limited and UK Insurance Limited had used contract terms that did not make it clear to consumers what level of claim they could make on their pet insurance. The companies' are part of the RBS Insurance group of companies.

The insurers all agreed to use new contract terms that inform consumers of the limits they can claim for various vet treatments, including when their pets are hospitalised, the FSA said.

"We consider that reserving such an unfettered discretion to the firm could potentially lead to detriment for consumers by limiting the cover they receive," the FSA's notice of undertaking (5-page / 118KB PDF) said.

"Further, although the consumer is paying the premium from the beginning of the contractual arrangement, he or she has no clear idea of what is / is not covered by the insurance policy, which is also to his or her detriment," it said.

"The insurer no longer has the discretion to decide what costs or how much to pay and the consumer has clear information as to what is/is not covered by the policy and the maximum limits of cover for each type of treatment from the outset of the contractual arrangement," the regulator said.

The FSA had assessed the contract terms in line with the Unfair Terms in Consumer Contracts Regulations 1999 (Regulations).

The Regulations set out rules that businesses must comply with when drawing up contracts for customers. Under the Regulations a term is 'unfair' "if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of the consumer".

The insurers had included contract terms that stated that they would only pay for costs incurred by customers that they deemed to be "reasonable and necessary", the FSA said. The "vague and potentially subjective concepts" were not set out in plain language and not clearly defined making it unclear what customers could claim for, it said.

The FSA also said that advice given by RBS Insurance to customers on its "limits to cover and treatments" was "likely to be contrary to the requirement of good faith". That is because the advice is issued "at the claims stage" when it is "likely to be too late for the customer to switch to another insurer if he or she is not happy with the cover provided".

The insurers agreed to publish the information about the "significant treatment limits" in a 'Key Facts' document and said those limits were "exhaustive". Other claims on customers' pet insurance policies "will otherwise be covered in full subject to the terms and conditions of the remaining policy documentation".

The FSA said insurers should be reminded of their need to comply with the Insurance Conduct of Business Rules. Under those rules "a firm must take reasonable steps to ensure a customer is given appropriate information about a policy in good time and in a comprehensible form so that the customer can make an informed decision about the arrangements proposed".

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