Firms selling critical illness insurance need to demonstrate a better understanding of the product and show they are treating customers fairly, says the FSA.
The regulator has released its review of CI, which included mystery shopping and visits to firms, and found although firms were doing more to comply with the rules there is still work to be done.
It says firms must ensure they are making sure consumers understand what they need to disclose and the risks of failing to do so and make documentation clearer – key features documents often did not clearly set out the benefits and limitations or exclusions under the policy.
Explanations of CI and what it did and did not cover were found to be poor and justifications for CI sales needed improvement – firms used standard wording in the demands and needs statements that did little to justify the sale.
Although many intermediaries undertook a detailed assessment of the overall protection needs of the client before recommending CI, where more than one protection product was offered, price was often the only factor used to decide which one to recommend.
The FSA says most firms had reasonable controls in place to manage the risk of mis-selling and there was little evidence of scaremongering or pressurising the consumer into a sale.
FSA director retail firms Sarah Wilson says: “Many of the findings are positive – and we also recognise that the industry itself has identified these problems with CI cover and has launched initiatives to deal with them and to assist in the fair treatment of customers, especially to make policy documents and applications forms clearer. It is early days but these seem to be having a positive effect.
“However, our work confirmed some of the compliance concerns we already identified last year in the context of work on the financial promotion of CIC and on general insurance documentation.
“As CIC can be complex, firms sometimes have trouble getting customers to understand what they are buying. This lack of understanding makes it difficult for customers to make a judgement about whether CIC – rather than a payment or income protection policy – is the right product to meet their protection needs. The high level of claims rejected because of customers failing to fully disclose their personal circumstances show just how important it is for firms to ensure that consumers know what information they have to provide.”