In a significant move by the FSA, the final rules governing the sale of protection and general insurance policies extends the remit of the Financial Ombudsman Service to rule on complaints relating to advice on protection plans. This means, for example, that when the FOS considers a complaint about a disputed claim, the advice given by the intermediary may, for the first time, be taken into account.
Given this extended authority, intermediaries need to be entirely clear on what is required of them and what types of situations may attract the attentions of the FOS.
When advising on protection products, intermediaries will have to make specific disclosures to the client, including:
Status, including who you are and/or who you work for.
Disclosure of any fees charged to client before they incur any costs.
Provision of a policy summary or opted-up key features document.
The cost of the policy.
Provision of a copy of the policy or a specimen policy document.
Details of the claims process.
Demands and needs statement before client is committed to taking out the policy.
The FSA has also set out three criteria it expects intermediaries to take into account when determining whether a protection product is suitable for their client:
Value for money.
FOS – the consumers' teeth
The Financial Ombudsman Service will act to defend the rights of the consumer. The FOS will take into account not just the law but also the wider aspects of what is fair and reasonable in all circumstances. Most disputes concerning insurance products fall into one of two categories:
Claims that are turned down or only partially paid.
Disputes over premiums.
All areas that are advice-driven have the potential for dispute. But these are the key areas where advisers need to be sure that their advice is watertight, especially when you consider that the ombudsman can award the person making the complaint up to £100,000 compensation.
Some examples of advice that the FOS might take into account when examining a complaint or disputed claim:
The scope of the cover. Was the need for child cover taken into account when recommending critical-illness cover to someone with a family or who might have a family in the future? If not and the client's child suffers a critical illness, it is possible that the ombudsman might rule that the policy was not suitable.
Disclosure. Responsibility lies heavily with intermediaries to encourage clients to disclose all relevant information. If a claim is disputed due to non-disclosure and the client was advised that there was no need to include the information, the FOS could hold the intermediary responsible.
Reviewable premiums. Was the nature of the review process explained to the client? If not then, again, the ombudsman may find against the intermediary.
Giving advice falls into a privileged circle of occupations from which the public expects the highest levels of professionalism and integrity. Intermediaries which offer financial advice on protection are an essential part of this elite group. To remain so will mean not just complying with the new regulatory processes but embracing the changes. Those who rise to this challenge can look forward to working in a thriving market and a rewarding future – in every sense.
Sue Wilkinson is head of life and health propositions at Abbey for Intermediaries