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Expat Investor : October 2007
Several years later Mrs M died. The insurer would not meet Mr M's claim because it said Mrs M had failed to disclose that, since 2000, she had been receiving treatment from a consultant psychiatrist in relation to 'cessation of drinking'. She had also failed to disclose that she had been attending Alcoholics Anonymous meetings. The insurer regarded Mrs M's non-disclosure as deliberate or reckless, and it avoided both policies. Mrs M's representatives argued that she had stopped drinking in 2002. The consultant psychiatrist stated that he had been monitoring Mrs M's abstinence and not giving 'medical advice' about reducing her drinking. He also said that he had advised Mrs M that her alcohol dependency should not be considered as an illness.However, the insurer contended that Mrs M should have realised that her history of drink problems was relevant to the insurance. Complaint rejected The Ombudsman decided that Mrs M had been entitled to answer 'No' to the question, 'Do you consume alcoholic drinks?'. She was not consuming alcohol at that time. On the question 'Are you currently receiving any medical treatment or attention?', it was satisfied that she had been receiving medical treatment or attention from her consultant psychiatrist in relation to drinking. However, it recognised that her consultant's approach was to minimise any suggestions that his role was medical, and it accepted that her incorrect answer to the question had probably been made innocently or inadvertently. It accepted that Mrs M had stopped drinking before 2002, but it was clear that she had continued to seek regular advice to support her decision to eliminate alcohol. So it thought her answer to the question, 'Have you ever sought or been given medical advice to reduce the level of your drinking?' was incorrect. It did not agree with her representatives that advice on maintaining her abstinence was not advice 'to reduce the level of her drinking'. It concluded that there was no evidence that Mrs M had deliberately given the wrong answer to this question. But neither was it likely that her answer had been innocent or inadvertent. INSURANCE CLAIM DISPUTES October 2007 EXPAT INVESTOR 19 In the Ombudsman's view, she could not have stopped to properly consider the question or her answer. Had she done so, it thought it unlikely that she would have given the answer that she did; the question would have raised issues that were fresh in her mind, and that it believed she knew were important to the insurer. Therefore, it regarded Mrs M's answer as reckless non- disclosure. It accepted that the insurer would not have issued either policy if it had been aware of the true facts. Its decision to decline the claim and avoid both policies had therefore been justified. Deliberate non-disclosure When Mr K took out life assurance, he stated that he was 6 feet tall and weighed 16 stone. Following his death from a blood clot at the age of 37, just five months after taking out the policy, the insurer discovered that Mr K's actual height was 5'9'' and his weight was over 21 stone. Mr K had also failed to inform the insurer about his kidney stone and gout. The insurer said that if it had known the full facts, it would have loaded the premium by 275%. It considered that his answers amounted to either reckless or deliberate non-disclosure and it avoided the policy. Complaint rejected The Ombudsman had no reason to suppose that Mr K had not understood the form he was completing. It noted that, in response to clear questions about his health, he had failed to provide relevant signed the application form, he could not have believed his weight was only 16 stone. Nor could he have believed he was 6 feet tall. The disparity between his actual weight and height and the information he gave on the form was so great that it was difficult to accept that he had been unaware of it. The Ombudsman decided that the insurer was entitled to avoid the policy on the grounds that Mr K's non-disclosure had been deliberate. information. As far as the information about his height and weight was concerned, the evidence suggested that he was aware that he was obese. The Ombudsman established that his weight had been recorded as 25 stone in May 1999, 24 stone in September 1999 and 21.2 stone at the post-mortem, less than five months after he had stated on the form that his weight was 16 stone. It was satisfied, on a balance of probabilities, that at the time Mr K "The insurer would not meet Mr M's claim because it said Mrs M had failed to disclose that, since 2000, she had been receiving treatment from a consultant psychiatrist in relation to 'cessation of drinking'". "As far as the information about his height and weight was concerned, the evidence suggested that he was aware that he was obese". Serving expats for more than 16 years J In this issue The unthinkable has happened. A run on a British bank -- the UK's fifth largest mortgage lender -- which , on one day, saw savers withdrawing £2bn in little more than 24 hours. As the Bank's share price crashed 39% the nation sat glued to its screens, watching scene after scene of depositors filing into Northern Rock branches across the country, determined not to leave unless they were clutching whatever savings they had placed with the Bank for safe- keeping and good returns. Despite the assurances of the lender of last resort, Britain's Bank of England, that their money was safe and protected by the Financial Services Authority's deposit protection scheme, few savers were willing to adopt a wait and see approach . This frenzy in the UK mortgage market has come about because of the crisis in the US' sub-prime housing market, where thousands of borrowers on low incomes and with poor credit histories have defaulted on their mortgage payments as US Federal Interest rates have increased. The companies that offered these debts for sale had re-packaged them into 'attractive' packages and sold them on to other banks and hedge funds around the world. As Alan Greeenspan, former chairman of the US Federal Reserve, pointed out, the UK borrowers caught between arockanda hard place Investor EXPAT g £4.95/ 7.50/US$7.50 October 2007 Bringing advisers and investors together Investor EXPAT Tony Hetherington Our offshore financial investigator exposes another financial scam. Investment banking What the top offshore banks' investment managers can do for your wealth. Healthcare policies Purchasing a plan that meets all your health needs. Insurance claim disputes When it pays to bare all. First Person The latest research on what's driving the European equity markets. Regulars 10 Offshore funds 12 Offshore savings accounts 21 Property investment 22 Offshore mortgage market Next issue Online banking Non-residence status Offshore finance regulators US equity market 6 14 18 24 5 www.expatinvestor.com As Britain's fifth largest mor tgage lender puts itself up for sale, UK borrowers fret over the personal cost of borrowing in a market athwart with uncertainties, as Expat Investor's editorial team reports. For more information from our advertisers or about products featured in Expat Investor enter the Fast Facts number onto the Reader Reply Service coupon on page 20 or go to: expatinvestor.com Fast Facts 88000 www.expatinvestor.com "There are those that you know you should read, and then there's the magazine you will read." To register for Expat Investor digital edition, visit the website at www.expatinvestor.com Serving expats for more than 18 years price of risk was falling to unsustainably low levels. It is in this context that we find banks no longer willing to lend to or borrow from each other, as the debt they have taken on is not being repaid. Borrowers on fixed rate mortgages will fare better during these uncertain times, than those whose loans are on variable rate term, as they can expect their mortgage premiums to remain as they are. Those with rate tracker products where the rate is linked to the Bank of England's base rate, will find that their mortgage can only rise as and when the Bank of England raises rates (regardless of what the lender offers new borrowers); but those with loans on a standard variable rate (SVR) can have their mortgage rate rise at the discretion of the lender. Using the money held in savings accounts, banks will seek to balance their books by borrowing from other institutions. When a bank lends more than it has on its savings book, it will raise funds from the wholesale markets -- such as the banks' money market -- but this course of action is a more costly one to the bank. An unusual feature of the present circumstances is that banks are uncoupling their lending terms from the Bank of England's base rate -- still held at 5.75%. The three month Libor (the interbank lending market) is the key variable rate at which banks will lend to one another. Over the Summer, this rate soared. To give some idea of how out of line it had grown, in the same week as Northern Rock's announcement, Libor hit a nine- week high at 6.9% -- that's 1.15 points above the Bank of England's current base rate. It is widely thought that the agreement Northern Rock struck with the Bank of England, to meet its obligations to its customers, was to borrow money at a rate around 7%. Market analysts are at pains to reassure borrowers that other banks will not necessarily be hit as hard as Northern Rock. This particular bank accrued more than 75% of its funding from the money markets. But Nationwide, for example, only seeks 30% of its funding this way, while Halifax Bank of Scotland goes to the money market for just 33%. However, new borrowers have discovered that many lenders have already raised their rates. Halifax and Abbey increased their tracker mortgages by between 0.1 and 0.2 percentage points before the announcement came that Northern Rock was in trouble. The latest comment from Alistair Darling, the UK's Chancellor of the Exchequer suggests his department will continue to call for more long- term fixed rate products to come on stream from lenders as these can, and will, bring a greater sense of certainty and security to borrowers. Property investors must be aware that these events may have a knock- on effect on prices. Even before the run on Northern Rock, the property market had faltered somewhat with the shambolic introduction of HIPs -- home information packs. Predictions are coming in that the country's house price growth will be halved next year as the global financial crisis prompts further rises in mortgage rates. Nationwide's forecast is that house price inflation will slow to around three per cent next year. Up until August of this year, house price growth was running at just under 10%. Nationwide now suggests that by the year's end, the percentage growth across twelve months will be more likely 7%, with a continuing slowing down into 2008. As for savers with UK deposit- takers, they are protected by the Financial Services Compensation Scheme. If the deposit-taker goes bust, your savings of up to £35,000 have some protection. Savers are guaranteed to get the first £2,000 back in full, and can expect 90% of the next £33,000 to be returned. OUT NOW! *THE ANNUAL INTEREST RATE QUOTED IS VARIABLE, GROSS AND EFFECTIVE FROM 1ST OCTOBER 2007. THIS RATE IS PAYABLE WHERE NO MORE THA N 3 WITHDRAWALS ARE MADE IN A BONUS YEAR (1ST APRIL -- 31ST MARCH) WITH A RATE OF 6.00% PAYABLE WHERE 4 OR MORE WITHDRAWALS ARE M ADE IN THIS PERIOD. THIS ACCOUNT IS ONLY AVAILABLE ONLINE TO INDIVIDUALS AGED 18 OR OVER AND IS NOT AVAILABLE TO UK RESIDENTS. Maximum balance is £ 1,000,000. Bradford & Bingley International Limited, International eSavings Unit, PO Box 263, Douglas, Isle of Man IM99 2JJ Br itish Isles. Registered in the Isle of Man No. 052221C. Registered Office: 30 Ridgeway Street, Douglas, Isle of Man, IM1 1TA . With share capital and reserves in excess of £266 million. Copies of our most recently audited accounts are available on request. Bradford & Bingley plc undertakes to discharge the liabilities of Bradford & Bingley International Limited in so far as the latter is unable to discharge them and remains a subsidiary of Bradford & Bingley plc. Under Isle of Man legislation, eligible deposits made with an Isle of Man office of Bradford & Bingley International Limited ar e covered by the Depositors Compensation Scheme contained in the Banking Business (Compensation of Depositors) Regulations 1991 (as amended). This advertisement does not constitute an invitation to make deposits in any jurisdiction to any person to whom it is unlawful to make such an invitation or offer in such jurisdiction. Interest rates are variable. Your tax position will depend on your personal circumstanc es and you may wish to seek guidance from your tax adviser. It is the responsibility of the depositor to declare any interest received to their relevant tax authority. EU residents who are subject to retention tax by way of the EU Savings Tax Directive will need to consider the effect of the retention tax that will be applied to their accounts. Licensed by the Isle of Man Financial Supervision Commission to conduct Banking Business. %* GROSS P.A. 6.50 eSaver Internet Savings Account . Minimum balance £1 . No hassles . Helps you save . Manage from home 24/7 Available now at www.bbi.co.im/esaver