The research, used to test the new oral disclosure requirements, highlights the central role that advisers play in the decision-making process and convincing consumers that critical cover is needed in appropriate circumstances.
But more worrying is the FSA’s findings that 70 per cent of consumers purchasing a critical policy on a direct basis believe they are being advised.
Where the adviser said they would only give information, 53 per cent of policyholders said the adviser went on to recommend a product.
The FSA warns there is a “grey area” in terms of consumer perception of what is advised and what is non-advised.
The research also raises questions over whether a product as complex as critical cover should be sold so freely on an execution-only basis.
Critical-illness insurance is a complex product with many variables and different exclusions which are often hard to articulate in a simple manner without advice. In many cases, through an advised sale, the client will be advised of the benefits of income protection to complement their cover.
If the consumer is educated enough to make an informed decision there is no problem with execution-only sales for critical-illness products but in many situations this is not the case.
The new Icobs rules were supposed to ensure a clear differentiation between execution-only sales and advised sales but the research suggests this is not working very well.
The new rules were intended to ensure consumers were clearly made aware that the sale is non-advised and therefore they have no recourse to the Financial Ombudsman Service.
Looking at various websites and taking into account the FSA’s own research, it seems clear these rules are not being adhered to properly and that some firms have ignored the FSA’s new rules.
The FSA says its next step will be to conduct further research and assessment of how far firms have implemented the new Icobs requirements, including the oral disclosure requirement.
On the back of this research, the FSA must get tough with firms so that consumers know exactly what they are buying, the service they will be getting and the fact they may not be able to log any potential claim with the FOS.