The Association of IFAs established a protection taskforce in March 2002. The term, taskforce, is an important one here as it emphasises the working nature of the group to address issues in a proactive manner.
Fay Goddard, director of policy at Aifa, a position she has held since 1999 when she was seconded from the IFA Association where she had been head of technical services, first had a career as an IFA. She joined as a technical officer in 1997.
At Aifa, Goddard's role covers most aspects of regulation and legislation that affect IFAs. She has a particular interest in professional development and is a UK representative on the international committee developing an ISO standard for personal financial planning.
She is also a member of the pathways to professionalism steering group and the industry consortium assisting the Department for Work and Pensions' informed choice team on the provision of workplace-based information and advice.
Goddard says: “The aims of the taskforce are to address any issues or concerns within the protection market that affect IFAs and their clients and also product providers. Once we have identified something that we feel needs better information or clarity, we will see if there is something we can produce, whether a fact/information sheet or a best-practice type of document so it is really to clear up certain misconceptions and get a better understanding.”
The first two key issues that the taskforce wanted to address were disclosure and total permanent disability.
The problems surrounding non-disclosure of information on applying for insurance cover are not new and the taskforce set out to see how non-disclosure of medical information could be avoided. It drilled down the definition of non-disclosure from the negligent down to the deliberate.
A factsheet was produced which goes through all these issues and offers a checklist for IFAs which should ensure they are doing their best by the insurer and the client.
“Tackling non-disclosure was driven more by the insurers in a real endeavour to help IFAs because they are the ones who sit in front of the client. They are the ones who need to make sure the client understands the importance of disclosing information and the consequences of not disclosing. It is better for everybody if the claim handler does not have to reject a claim,” says Goddard.
The other key issue that the taskforce has addressed is on TPD with the definitions of own occupation or any occupation, whether the client is insuring for the job they do when they take out the insurance or if the scale broader.
Goddard says: “TPD is a very grey area because it tends to be used as a catch-all. The danger is that if a claim is put forward which clearly does not meet the definition of TPD, it is rejected.”
The problem is exacerbated by product providers differing in how they cover TPD, says Goddard. Some will work on functional ability tests while some use activities of daily living.
“We are trying to clarify and highlight all these different facts so the IFA can have all this information and ask the right questions of the insurer and communicate that to the client,” says Goddard.”
Insurers and IFAs have raised this issue with Aifa, prompting the taskforce to look at possible solutions to the problem of declined claims. Goddard says around 75 per cent of all claims declined are because the condition is neither total nor permanent. The taskforce hopes to have an information sheet on TPD out within the month.
Ahead of regulation in January 2005, many IFAs doing general insurance have had something of a wake up call, says Goddard, in that they had been doing the business for so long it did not occur to them what are were doing in terms of term and critical illness is classified as general insurance. They have needed to be aware of the need to vary their permission with the FSA and to be fully aware of the rules and regulations.
This will not be a shock to many IFAs who have been operating under GISC guidelines and who understand conduct of business rules, prudential regulation and know what the FSA expects of them but there could be resistance from those who failed to maintain membership of GISC.
Goddard says: “A lot of IFAs will be saying, 'I have been doing this business for years, I pay FSA fees, I pay ombudsman fees, I pay the compensation scheme fees, I am now being asked to pay all these again to do what I am already doing,' so a lot of the discussions we are having with the FSA are regarding the fee structure for IFAs.”
She says Aifa is keen for members to identify other issues that need addressing and ways in which Aifa can help members communicate better with insurers or clients. As she says, virtually all IFAs will do some protection business at some point. “We are not expecting lots of issues to come out. We are not looking for something to create unless there is a need for it but if we can identify any way of helping, then we will,” she says.