Alun Beynon, head of sales and distribution at AEGON, warned today that providers relaxing standards could potentially lead to a risk bubble being created similar to the one that preceded the collapse of the mortgage market.
But Carr, who also writes a regular column in Mortgage Introducer magazine, says the real risk for the protection industry is not providers relaxing their standards and causing a bubble, but intermediaries taking on greater risk in the process.
He said: "The question isn't really whether providers require a signature or not, the real risk is on the IFA side.
“Under ICOB it’s brokers who will have to prove non-disclosure or that a customer lied.
“The customer doesn't have to prove they're telling the truth, even in the presence of a signature saying the contrary.
“If there are fines dealt out on a brokered case where non-disclosure of material information is an issue, the risk is that blame will be laid at the door of the broker for non-disclosure, rather than the provider for failing to corroborate or the customer for failing to understand the forms or not telling the whole truth."
Beynon warned that a potentially dangerous situation could be developing in the protection market, citing reductions in the commission earning period; relaxing standards on the need for a customer signature on applications; advisers not being required to disclose commissions to their clients; and shortening application forms. He believes these are symptoms of provider competition and give the potential for increased risk.
Carr agrees with Beynon on some issues but doesn’t believe that the protection industry is heading for a bubble.
He said: “I don’t think short application forms would impact on the quality of business brokers write, and I don’t think it’s true to say commissions aren’t disclosed – they are on confirmation schedules.
“It’s true that brokers writing business with a four year claw back period will tend to have more persistency than those on a two year scheme, but I don’t believe the claw back period affects the underlying quality of the business.”
Rather, Carr said there could be a link between the length of time the customer stays with that policy and the length of the claw back period.
Carr also said he did not believe that the presence of a wet signature on a confirmation schedule or not would affect the quality of business, nor did he believe it was necessary for a claim to be upheld by the Financial Ombudsman Service in every instance.
He said: “There are examples of the FOS finding in favour of a customer claim, where the provider has a wet signature and has refused to pay based on non-disclosure.”
However he acknowledged that there was a lack of consistency and guidance on the need for a wet signature across the industry.
