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FSA warns CI consumers confused over what is a direct sale

Seventy per cent of consumers purchasing a critical illness policy believe that they are being given advice during an execution-only sale, according to FSA research.

In its report, Post Implementation Review of Icobs: Oral Disclosure Rule in sales of Critical Illness Cover, the FSA found seven in 10 consumers believe that they are being advised during the direct sale of a CI plan.

The research also praises the role of advisers, suggesting they 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.

Nine out of ten policyholders recalled the adviser verbally explaining the product and nearly all, 95 per cent, described it as helpful.

The FSA found consumers were heavily reliant on the adviser in terms of the information they got about CIC, with 60 per cent claiming the adviser was the main source of information.

The paper, focusing on the new oral disclosure requirements introduced under Icobs, suggests there is a “grey area” in terms of consumer perception of what constitutes an advised and non-advised sale.

The report, the first piece of analysis looking at sale of CI cover since the introduction of the new Icob rules in January 2008, found that there is a clear gap between consumers’ perceived understanding of CIC and actual understanding of the product.

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.

However, while the report concluded that CI distributors are failing to orally disclose necessary policy details to enable consumers to make a informed decision when purchasing a product, advisers fared better.

The FSA is now undertaking stage two of this research in Q2 and Q3 of 2009. It will be testing whether consumers are gaining a better understanding of the key features of a policy, including significant exclusions and the status of the service before buying.

As well as this, it will be undertaking a limited assessment of how far firms have implemented the new requirements introduced in Icobs for sales of protection products, including the oral disclosure requirement.

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