Misrepresentation, Non-Disclosure and Breach ... - Law Commission

10.9 Some intermediaries fall outside the scope of Financial Services Authority (FSA)
regulation. This means that if the intermediary fails in its duties to the consumer,
the consumer cannot bring a complaint against them to the Financial
Ombudsman Service (FOS); and if the intermediary becomes insolvent there is
no right to compensation from the FSCS. As we explained in Part 9, travel
operators arranging travel insurance and product retailers arranging product
insurance are exempted from regulation in this way. Furthermore, other
professions or businesses may give incidental information about complementary
insurance products: they are not meant to give advice about completing forms,
but they might overstep the mark. If they do so, the consumer has no right to
complain to the FOS or to be compensated by the FSCS. However (as we
explain below) we are not aware that these gaps in protection cause problems in
practice. We do not think they require special measures.
Ease of enforcement
10.10 It is easier for the insured to claim on the policy than to bring an action for
negligence against the intermediary. Inevitably there are delays in pursuing a
complaint against an intermediary, even through the FOS. There will be further
delays if the intermediary cannot pay and a claim has to be made under the
FSCS. Even if a claim against an intermediary is ultimately successful, the
consumer may have been left without funds at a time when they were most
needed. If the insurer were to be responsible for paying the insured and
recouping damages from the intermediary, the consumer would be paid more
quickly.
10.11 It would also prevent the consumer who brings a claim against the insurer on the
assumption that the insurer is responsible from having to “start all over again”.
That however could be avoided by procedural changes within FOS. It may, for
example, be possible to introduce a system whereby a joint complaint could be
made against both the insurer and the intermediary.
10.12 We do not think that ease of enforcement alone justifies changing the law.
Reasonable expectations
10.13 We have already said that there appears to be a common understanding among
some consumers that certain intermediaries are representatives of the insurer
even though as a matter of law that is not the case. To most consumer insureds,
the intermediary may well be seen as much a “part of the industry” as the insurer
itself, and they will not understand that in law the intermediary acts for them and
not the insurer. It is not surprising that such an insured thinks it suffices to give
the relevant information to the intermediary or to follow their advice about how to
answer questions. This point was put to us forcibly by the FOS:
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