It has been quite a while since I read an insurance company's terms of business agreement but, as one landed on a desk near me recently, I thought I would read it to try to understand why changes were needed to the previous agreement. It turned out that the changes were necessary to accommodate ebusiness, particularly the use of the provider's eprotection application and underwriting tool. Here are some extracts that I have just read.
The intermediary shall ensure all data submitted is accurate to the best of the intermediary's knowledge and has been gained through discussion with the client. It is the responsibility of the intermediary as agent of the client to ensure the client is aware of the need to inform the company immediately of any change in their health or circumstances before it assumes risk for all cover applied for.
The intermediary will indemnify the company against any loss sustained by the company arising from the provision of incorrect information or any loss suffered by the company as a result of any breach of the terms by the intermediary, its agents, employees or anyone to whom the intermediary grants authority access to the system.
Let us assume that in a few years time there is a critical-illness claim and it turns out that either the client's circumstances changed as the case was being underwritten and he claims the adviser did not make him aware of his obligation to disclose relevant information after application or the client says he disclosed information which the adviser said was irrelevant. Now let us assume the insurer decides to pay the claim. What do its terms of business allow it to do? The contract is clear – it can recover the sum paid and any other expenses from the adviser.
The conditions actually seem quite reasonable to me. It is the adviser's responsibility to give full advice to the client, including the importance of disclosing medical history and any previous or current diagnosis. The only contradiction is that insurers require advisers, who they see as the agents of their clients, to contract with them to compensate them for their losses for non-disclosure when they also require clients to sign a paper version of the online application before going on risk. Do insurers feel they cannot rely on applications signed by clients as evidence that they understand their obligations?
Not only do insurers want their cake, they want to supply the recipe and ingredients, dictate the measurements and cooking instructions, then inspect it before eating it. If they do not like the taste, they want you to pay all their costs and expenses incurred from start to finish.
From a business perspective, I do not have a problem with this and, if I was an insurer, I would do the same. It is simply that they have thought through the implications of the electronic age and are preparing themselves for it. It is time for you to do the same. Assuming you conduct business properly and professionally, it is sensible to provide yourself with the protection you need from the possibility that clients might have selective amnesia in future.
In this electronic age, you must record every conversation with every client and every insurer. You must date every recording, log it and store it for easy retrieval. If you employ staff to key this data for you, you must monitor this. It is the only way to protect yourself.
Richard Verdin is sales and marketing director at Direct Life & Pensions