View more on these topics

Financial fallacy proving too critical

The FSA’s conclusion that there is a distinct consumer misunderstanding over what constitutes advice and execution-only when buying critical illness cover has caused a stir among industry commentators.

In the days following the FSAs CIC report, Review of Icobs: Oral Disclosure Rule in sales of Critical Illness Cover, Money Marketing received a steady stream of views over the 116-page paper, which revealed 70 per cent of consumers purchasing a CI policy believe that they are being given advice during a direct sale.

Unfortunately most were of the view that consumers generally are confused about what makes up financial advice, and what components critical illness cover comprise.

Unleash Advice Partnership IFA Adrian Kidd says the findings, which suggested there is a “grey area” in terms of consumer perception of what constitutes an advised and non-advised sale, is of no surprise.

He says: “Consumers are clearly confused as to what service, advice and options they receive. They seem to have no perception of whether sales are advised or non advised, about the options available around paying for advice, and also if someone is tied, multi tied or independent.”

Highclere Financial Services partner Alan Lakey has long held the view that it is “nigh on impossible” for CI or income protection to be arranged on an execution-only basis.

He says: “If the consumer applies online by clicking his mouse then it may be that a true execution-only can be claimed but due to the complexity of these products any process that involves a human-to-human phone call or face-to-face meeting must involve some degree of advice.”

Providers too have expressed concern over the figures stated in the review. Bupa Individual Protection head of product development and marketing Steve Casey says: “The figures the FSA put out really worried me. Seventy per cent of people thinking they’re getting advice, I mean that is terrible. It really does worry me.”

Pru Protect director of protection Kevin Carr says the findings further stress the importance of severity-based cover after key misunderstandings are with illnesses covered and not covered, with 46 per cent believing they were covered for all types and severity of cancer and 71 per cent believing they were covered for all types and severity of at least one type of condition they were asked about.

He says: “This suggests that our whole body coverage approach with severity better meets customers’ perceptions as the report suggests that many consumers think they are covered for much more than they are under CIC.”

Reinsurer Munich Re is now suggesting a number of key changes the industry must embrace to tackle this problem. Head of marketing Andy Milburn is flagging up three in particular – an adviser checklist, a makeover of the protection exam and assistance from the ABI.

He says: “We’re suggesting that firstly there is an adviser checklist that advisers use when they are recommending CI and IP products – that would help to get them to understand things like talking about of the conditions covered.

“We’re also suggesting that there needs to be a revamp of the CF3 exam and that it needs to be broken down into sections. The third one is the ABI needs to take this into account when putting together its Critical Illness Statement of Best Practise.”

Talk is now around how much the review will affect the ABI’s pending CI Statement of Best Practise, and to what extent the trade body will take into account the findings.

But ABI Spokesman Jon French says the FSA paper will not effect the release of the new statement, which is currently being revised and is due for release later in the year.

He says: “People in the industry and the ABI will obviously take a close interest in the issues raised by the FSA.”

However, one encouraging point in the paper is the FSA’s conclusion that advisers are “central” to the purchase decision of CIC. It says in many cases the adviser was the main reason for convincing people CIC was the appropriate product for them.

Let us know what you think about the review by clicking on the comments box below.


News and expert analysis straight to your inbox

Sign up


There are 2 comments at the moment, we would love to hear your opinion too.

  1. CI to Eye
    If ever there was a compelling reason for not including protection within the confines of the RDR barriers this is it. Tied agents may know their own product but they are not capable of researching and selecting the most suitable product, be it CI or IP. It is to be hoped that the FSA considers this research when embarking on its next round of sales restricting rule-making.

  2. Advice or execution only
    It seems people buying financial products do not know when they are given advice and when they are not, well, fancy that!

    When will the FSA understand that buying insurance on line or with cabbages and washing powder is likely to result in an unsatisfactory sale. It is a sale towards a sales target rather than a sale to satisfy a protection need.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm