PPI insurance claimants suffer due to vague policy terms

The Association of British Insurers (ABI) has this week urged insurance customers to ensure that they fully understand the terms and conditions of their insurance policies, when insuring themselves against sickness and unemployment. 

The comments followed a case where an insurer turned down a payment protection insurance (PPI) claim, quoting a clause blocking claims where the insured ‘became aware of any increase in the risk of unemployment’ during the first three months of the policy. 

The customer took his claim to the Financial Ombudsman Service (FOS), which upheld his complaint. The FOS criticised insurers over vague wording of clauses which could be used to turn down valid claims. 

Clauses excluding cover to individuals who become ‘aware of any increase in the possibility of redundancy’ are designed to protect insurers against claims from policyholders who took out cover, knowing that they were likely to lose their jobs. 

However, the FOS said the wording of some PPI contracts was so vague that any downturn in the UK economy during the first three months of a policy could be interpreted as rendering customers aware of the possibility of redundancy. This could then exclude them from cover. 

Consumer groups such as ‘Which?’ have stated that in the current general economic downturn, the vague wording of exclusion clauses could be used by insurers to turn down valid claims.

The comments highlighted the need for insurance applicants to have their financial adviser clearly explain the ‘small print’ in their insurance policy.

The ABI pointed out that some insurers do ask a specific question in their insurance application form, to assess if the applicant has any awareness that he is likely to be made redundant. It was important for applicants to understand that such knowledge could void their policy, the ABI stated.