The changes introduced by the Financial Services Authority (FSA) will take effect in December, with the market then having six months to 'fall into step'.
However it is thought that, given the entrenched position many underwriters have taken, it is going to require a significantly increased effort from the intermediary community to meet its future liabilities.
Currently underwriters have been focused on rating clients and selling as many policies as possible - as such the filters they have used have not focused on eligibility, but premium rating. For General Insurance (GI) brokers selling these policies, they have in turn used these same rating questions when interviewing a client over a potential payment protection insurance sale.
It is common market practice therefore to rely on questions such as: “Have you been in work for six months or more?” and “What is your income?” when conducting a client interview.
However these questions and many of the others used, do not elicit enough information from the client to know whether or not they are fully eligible or suitable for the policy they are considering.
In these particular examples a client may have been in work for six months, but the benefit offered by the policy may be calculated as an average of their last 12 monthly wage packets. If the client makes a claim before they have worked a full year, then the benefit calculated will not reflect their true earnings.
In the second example the income of a self-employed client may be made up in a large part by dividends and under some policies these will not be included when it comes to calculating the monthly benefit – again leaving the client short changed.
The problem for brokers is that they have not investigated the changes coming to market and made suitable changes to their sales processes. At the same time, underwriters are loath to change their policy wordings or be more proactive in terms of helping brokers assess the potential eligibility of clients.
Why should they when under the FSA’s rules the responsibility for the sale rests on the agent in contact with the client rather than the underwriter?
Simon Burgess, managing director of Britishinsurance.com feels many intermediaries are sleepwalking into potential problems and are being allowed to do so by their underwriting partners.
He said: “Underwriters realise that the ratings questions they use are not suitable to determine eligibility, but are doing nothing to change them as the responsibility for the sale falls on the broker. If underwriters end up with clients who are ineligible for the policy they are happy to take the premium, absolve themselves of any responsibility and take refuge in the knowledge that the client will never be able to claim.”
Underwriters will argue that their responsibility lies in simply rating a client, but given that brokers are distributing the insurance for them and taking on the burden of regulation at the point of sale, Mr Burgess believes it is iniquitous that more have not been proactive in ensuring brokers can continue to do an excellent job for the end client.
Burgess stated: “Again the general concern in this market is too focused on making the sale, rather than getting the right policies to the right people and brokers are going to find it hard to screen clients and deliver the kind of information they need to, if underwriters are not going to be more proactive.”
