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Application of Interest

Introduction
The Financial Ombudsman Service will adopt the following approach when exercising its discretion to award interest on general insurance disputes.

Parties should always consider addressing the issue of interest in their submissions, especially when a substantial sum of money is involved. Further, parties should note the Financial Ombudsman Service has jurisdiction to award interest in addition to its compensation caps (clause 9.7(b)(ii) of the Terms of Reference).

Example:

Applicant’s claim is $280,000.
Interest calculation = $44,800 (denial 2 years old and applicable interest rate @ 8%)
The Financial Ombudsman Service could award $324,800 to the applicant

Awarding Interest

  1. The Financial Ombudsman Service will always consider whether interest should be awarded if a Recommendation and/or Determination is made in the applicant’s favour.
  1. Interest will normally be awarded if the applicant has spent a sum of money restoring the subject matter in dispute. Examples when this may occur in general insurance disputes are:
    • Payment made for repairs to a motor vehicle;
    • Payment made for repairs to damaged property;
    • Travel expenses paid (i.e. medical expenses, cancellation costs etc.).

If the applicant has not spent any money on the subject matter in dispute, interest may not be awarded. The principle behind this is that the cost of restoration or repairs, which the Financial Services Provider (FSP) will be liable for, may have increased due to the passage of time.

  1. When an applicant has failed to reasonably progress their claim without good reason, interest may only be awarded for part of the relevant period.

Calculating Interest

  1. Interest is usually awarded from the date when the FSP first denies the claim. However, if there is a significant delay between the date when the claim is made and the FSP’s initial decision on the claim, a date pre-dating the first denial letter may be elected.
  1. The rate is to be calculated in accordance with section 57 of the Insurance Contracts Act 1984 and Regulation 32 of the Insurance Contracts Regulations 1985. The table on the right shows the applicable interest rates.