General Insurance Advice & Sales Process
1.Introduction
General Guidance
Introducing
2.advice & sales process
Initial Disclosure Document (IDD)
Fees and Commission Disclosure
Fact find
Existing Plans
Affordability
Suitability of Recommendation
Research
Product Disclosure
Policy Summary
Statement of Price
Statement of Demands & Needs
Cancellation Period
Claims Process
Re-broking Insurance
Group Insurance Policies with Multiple Policyholders
Product Disclosure on ‘Distance Contracts’
Distance Contracts - Telephone
3.renewals and mid-term changes
Mid Term Changes
4.record keeping requirements
1.Introduction
1.1Statutory regulation of GI sales has been driven by the need to comply with the Insurance Mediation Directive (IMD); plus other EU directives such as the Distance Marketing Directive, Consolidated Life Directive, Third Non-Life Directive and Fourth Motor Insurance Directive.
1.2The New Insurance Conduct of BusinessSourcebook (ICOBS) came into effect on the 6th January 2008 with a six month transitional period that meant firms were expected to meet the required standards by 6th July 2008.
1.3The new ICOBS Sourcebook is a significant step forward in the FSA’s programme of principles-based regulation with the removal of many detailed rules and a much greater reliance on the FSA’s Principles for Business and a small number of high-level standards expressed as rules.
1.4The FSA has tried to impose the minimum regulatory burden necessary to adequately protect consumers, and comply with the EU Directives. This handbook has adopted these rules and largely relies on disclosure to deliver its objectives.
General Guidance
1.5Under the ICOBS rules there is no specific ‘independence test’, unlike the mortgage market. However the impression given to customers about the status of the firm must be clear, fair and not misleading considering the firm’s adverts, website, shop front etc. It is also misleading to suggest you can provide an independent insurance service, unless you can offer a wide range of Insurers through the firm.
1.6This manual applies to advisers who are permitted to give advice on protection and ‘other’ general insurance products.
1.7A regulated general insurance product or ‘non-investment insurance contracts’ as defined by the FSA includes:
‘Other’ General Insurance Productsall general insurance such as household, motor, pet and private medical, and
Pure Protection Products which have no investment element, such as term assurance, critical illness, income protection and PPI.
NB: Long term care insurance is covered by the FSA’s designated investment regime – it is not considered to be an insurance product for regulatory purposes.
1.8Advisers (you) are permitted to provide advice on all the above areas provided you are deemed competent or are under supervision as outlined in your training record. Refer to the Training and Competence Manual for further guidance.
Introducing
1.9Unlike the situation applying to mortgages, there is no general exemption from authorisation for introducing insurance. None of the existing exemptions in the Regulated Activity Order apply, and the Insurance Mediation Directive prevents the FSA from exempting introducing from the list of regulated insurance activities.
1.10None of this prevents you from introducing types of insurance that you cant, or don’t wish to sell yourself, however certain procedures must be followed:
Limit activities to putting customers in contact with a person who is authorised to arrange insurance. This means you can’t get involved in filling in application forms, factfinds etc;
Disclose the receiving firm’s name, address, statutory status; details of any fees that will be charged for the introduction service, whether the receiving firm is part of the same group as [Firm Name] to the customer.
2.advice & sales process
2.1You must consider all products within your scope before making a recommendation. However, where aproduct doesn’t meet all the customers demands and needs you must ensure that:
You don’t have a product in your range that meets the customer’s demands and needs better than the on you are recommending; and
You point out to the customer which demands and needs haven’t been met by your recommendation so that the customer can make an informed decision whether to continue to take out the policy.
2.2The following sectionsdetail what the FSA mean by ‘demands and needs’, and what factors you need to take into account when assessing and making a recommendation to the customer.
Initial Disclosure Document (IDD)
2.3The firm’s requirement is that the IDD should be issued at the start of the sales process and if necessary, on its amendment or renewal. If initial contact is made by telephone the CIDD or IDD must be sent in the post within 5 working days or immediately after the conclusion of the contract, whichever is sooner.
2.4With some types of insurance, the customer might ask for a quick quote to get a rough idea of costs, without providing full details needed to produce a definitive figure. You can provide ‘quick quotes’ without triggering an IDD as long as the quote can’t be accepted, and lead to a sale.
Fees and Commission Disclosure
2.5The firm’s IDD details the amount of any fees, other than premium monies, payable by the customer. This must be given before the customer incurs liability to pay the fee, or before conclusion of the contract, whichever is earlier.
2.6For insurance business you are not required to inform the customer of how much commission you will receive but if you wish to disclose this to the customer then you may do so. However, please note, agency law requires you to disclose commission on request if you are the customer’s agent.
2.7The FSA rules do require you to disclose commission to commercial customers if requested for non-investment insurance business. If asked, you must disclose any commission earned by you or an associate in a durable medium in cash terms.
Fact find
2.8Before making a personal recommendation, you must seek relevant information about the customer’s circumstances and objectives to identify what their requirements are.
2.9Where possible you must take account of facts affecting the type of insurance recommended, such as relevant existing insurance policies the customer already holds. You should use any relevant details about customers at your disposal – e.g. details gathered in respect of other policies you’ve previously advised them on.
2.10You must explain clearly to customers their duty to disclose all circumstances material to a policy, what needs to be disclosed and the consequences of non-disclosure. That is, their claim could be rejected or reduced if they give false information or fail to disclose important information. Ensuring the customer discloses all information should be carried out by asking clear questions relevant to the policy.
Existing Plans
2.11You should base your recommendation on what the customer tells you. If they tell you they haven’t got any relevant existing plans, you can take their word for it. However you should document it clearly on file.
2.12If you have details of the customer’s existing cover at your disposal, you must take it into account when making a recommendation. If however a customer mentions that they think they already have an insurance policy, but is hazy about the details and you’re aware that it is likely to affect the suitability of any recommendation you make, you must either:
Not recommend anything until you have full details of the existing policy; or
Explain that your recommendation may not be suitable because you haven’t taken full details of existing cover into account.
2.13If you decide on the second option, you must insert an appropriate caveat in the Statement of Demands and Needs confirming that your recommendation may not be suitable and the reason for this.
Affordability
2.14To assess affordability, you need to find out how much disposable income is available. You have a responsibility to assess whether the customer can afford your recommendation and must take into account:
The information your customer provides about their income and expenditure, and any other resources they have available (unless you have reason to doubt it, in which case you should investigate further); and
Any anticipated changes to those circumstances.
Suitability of Recommendation
2.15In line with Principle 6, you should take reasonable steps to ensure that a customer only buys a policy under which they are eligible to claim benefits.
2.16If, at any time, you find that parts of the cover do not apply, you should inform the customer immediately so they can take an informed decision on whether or not to proceed with the policy.
2.17There are three other factors you should always consider when deciding whether a particular insurance product meets thecustomer’s demands and needs.
Is the level of cover enough for the customer;
Cost – versus other policies in your range that cover similar demands and needs;
Relevance of any exclusion, excesses, limitations or conditions in the policy.
2.18It is recognised that buying insurance is about balancing the customer’s desire, or need, for protection against certain risks against the amount they can afford, or is willing to pay in premiums. Cost and risks covered will obviously pull in different directions but they are both relevant to a customer’s demands and needs.
2.19A customer may decide to lower their sights in terms of the risks insured, or levels of cover, in order to save money. Where this occurs you should ensure the customer is aware of the consequences, this should then be reiterated within the Statement of Demands and Needs so that the customer is clear on the policy taken out. For example: ‘you were interested in accidental damage cover, but the extra premium was more than you wanted to pay, or could afford, so you decided to do without it’.
Research
2.20For products where you have a range of Insurers to choose from, you must recommend the product that best meets your customer’s demands and needs. You must keep details and evidence of why a particular product and Insurer has been recommended on the client file for a period of at least six years from the date on which you made the recommendation.
Product Disclosure
2.21You are responsible for providing the following information to the customer, in a durable medium and in good time before conclusion of the contract.
Initial Disclosure Document;
Policy Summary;
Statement of Price;
Statement of Demands and Needs
2.22You must also draw their attention to the importance of reading the Policy Summary and other documents, in particular to any significant and unusual exclusions or limitations that may apply.
Policy Summary
2.23The Policy Summary must be sent in good time before the conclusion of the contract in writing or other durable medium.
2.24Unlike the mortgage KFI, there is no set format for the Policy Summary in the FSA’s rules. The key points to note are as follows:
If not a standalone document, it must be prominent, clearly marked as key information to be read, and separate from other content of the document it is included with;
Insurers can use the key features document format instead of a Policy Summary (likely to be standard practice for pure protection – the KFD format is already widely used in this market);
2.25The Policy Summary should include the following information;
The FSA’s Key Facts Logo must be at the top of the Policy Summary.
Statement that the full terms and conditions are in the Policy Document;
Name of the Insurer;
Type of insurance and cover,
Significant features and benefits;
Significant and unusual exclusions or limitations and cross-references to the relevant policy document provisions;
Duration of the policy;
Statement that customers need to review and update cover periodically to ensure it remains adequate;
Existence (or not) of a cancellation period, and its duration;
Contact details for notifying a claim;
How to complain and that complaints may subsequently be referred to the Financial Ombudsman Service;
Statement about the Financial Services Compensation Scheme.
2.26A significant exclusion/limitation is one which tends to affect a customers buying decision. An unusual exclusion/limitation is one not normally found in comparable policies.
Statement of Price
2.27Where a policy is bought in connection with other goods or services you must, before conclusion of the contract, disclose the premium separately from any other prices and confirm whether buying the policy is compulsory.
2.28Price information should be given in writing or another durable medium in good time before conclusion of the contract.
2.29The statement of price must include the following details:
The total premium – or at least the basis for calculating it, that a customer can use to verify it later on;
For policies lasting more than one year: how long the initial premium is valid, and whether and when it will be reviewed;
Any fees, administration charges, and taxes paid by the customer via the adviser in addition to the premium including any interest charged on the premium (e.g. if an annual or single premium is added to the loan) and a statement identifying the possibility of any taxes not payable via the adviser;
Where insurance has been purchased in connection with other goods/services the premium must be separate and reference made to whether the insurance is mandatory when purchasing other goods or services or not;
A statement identifying separately the possibility of any taxes not payable through the firm;
The total price of the insurance.
Statement of Demands & Needs
2.30The Insurance Mediation Directive (IMD) requires a Statement of Demands and Needs’ (D&N) to be provided to customers for all insurance sales, in writing, prior to the conclusion of the contact. This requirement is reflected in the FSA’s insurance rules under ICOBS.
2.31Elements that should be covered in the D&N are:
Confirmation that the IDD and other important document have been provided to the customer;
The customers demands and needs;
That you have personally recommended the contract;
The reason for personally recommending the contract including contract features not available anywhere else, price, or service levels;
Why the customers demands and needs combined makes the recommended contract suitable for the customer;
The complexity of the insurance proposed;
Cancellation rights;
The importance of reading the documentation issued before the end of the cancellation period to check that the policy is suitable.
2.32The D&N must be in plain English; concise and clear. Any technical terms/jargon must be explained.
2.33The Statement of Demands and Needs is arguably the most important document issued to the customer as this will confirm not only why recommendations have been made, but also why it is considered suitable to the customers’ circumstances (present and future). A D&N letter will be judged, not simply as it appears today but also how it will appear to the customer in a few years time.
2.34It is highly probable that a customer, if asked, could very well explain why a contract was set up, in the days or weeks after receiving the policy document. It is much less likely that the same customer could do this, some, two years or more after the event. A high quality letter should contain enough information and be phrased in such a way to allow that same customer to read through it again and, irrespective of the time elapsed, immediately understand what it is they have and why they have it.
2.35In most cases, you should issue the D&Nbefore the contract is concluded. The exceptions to this are:
Where the customer requests one to be sent;
Customer requests immediate cover;
Buys over the telephone and the information is provided orally.
2.36If any of the above occurs, the FSA rules sate that the D&N must be provided immediately after the contract concludes.
2.37[Firm Name’s] policy is that you provide the D&N within 3 business days of the customer accepting your recommendation or prior to conclusion of the contract whichever is the earlier; this should then make it easy to comply with the FSA’s rules, regardless of the individual circumstances of the sale.
Cancellation Period
2.38The following information must be provided to the customer in writing or another durable medium in good time before conclusion of the contract, or earlier if available:
The existence or absence of a right to cancel;
The duration of any cancellation period;
Any conditions for exercising it;
Information on the amount the customer may be required to pay if they exercise it;
The consequences of not exercising the right to cancel;
Practical Instructions on how to exercise cancellation rights – including the address to notify.
2.39The customer has a right to cancel, without penalty within:
30 days for a policy which has elements of a pure protection contract or payment protection contract;
14 days for any other insurance policy or distance contract.
2.40The cancellation period starts from either: