Critical theory

An interesting point was made to me recently regarding the legal position of financial firms that employ advisers.

Imagine this scenario – a firm has 10 qualified salaried advisers and all are achieving their minimum production targets. Each of the advisers has been with the firm for 10 or more years and has a faultless compliance record.

On December 31, 2012, Mr Employer tells three of the advisers: “Sorry guys, you have not achieved QCF4 status so I am going to have to let you go.” Stop one, the job centre, stop two, the employment tribunal.

I am no expert on employment law and no doubt there will be many out there, possibly other columnists, looking to educate me on this but it seems highly likely that Mr Employer will find himself in breach of the Employment (Industrial) Tribunals Act 1996 and will have to pay compensation.

The contract of employment will determine whether such a sacking constitutes unfair dismissal, so the matter may not be clear cut. Notwithstanding this, there are sure to be a number of firms that find themselves compelled to compensate employees simply for following the FSA edict regarding qualifications.

By the time this column appears, the Bright Grey critical-illness summit will have taken place. This represents the first time any section of the industry has chosen to scrutinise the value of CI product design and invite input from advisers, reinsurers, the ABI and the Financial Ombudsman Service.

As providers look to keep an edge on their competitors by adding new conditions and finetuning existing wordings, it provides for a worrying chasm of ignorance where some providers are now on their 12th generation of definitions.

The ability of advisers in navigating this maze is doubtful, as is their understanding of the plan differences. Not too long ago, a survey provided the disappointing news that more than 60 per cent of advisers consider cost the most crucial factor when selecting a plan for their clients. Perhaps this is partly because the struggle to compare plans is so taxing.

Equally, I imagine we would all draw back in horror if each plan was of identical design with indistinguishable claim definitions. At this point, the aggregators and bucket shops would be well on their way to victory because the product would have been commoditised in the same way that motor insurance has been.

CI plan design has caused many problems, not the least of which is a cackhanded methodology whereby additional conditions are added without using the common-sense course of determining whether they effectively mirror an existing condition.

Take the conditions of Alzheimer’s, dementia, pre-senile dementia and Creutzfeldt-Jakob disease. All four conditions share a permanent inability to remember, reason, perceive and understand, meaning it is the outcome that is important not the name of the condition causing it. Similarly, we have named neurological conditions such as Parkinson’s, multiple system atrophy and motor neurone disease, where the defining claim requirements are similar.

Surely it is not beyond the wit of the industry to redefine CI plans to reflect such similarities so that we have a smaller roster of claim triggers that do not require a 20-page explanation or the potential unfairness of a claimant whose claim is rejected because his permanent debilitating condition is not specifically named.

Alan Lakey is partner at Highclere Financial Services