Financial Services Complaints Limited (FSCL) is urging the financial services industry to provide clear and comprehensive advice to consumers about replacement insurance cover.
As the Financial Markets Authority today released a report into sales practices in the life insurance industry, FSCL Chief Executive Susan Taylor said it was investigating an increasing number of cases where financial advisers had recommended their client switch insurance provider, and it hadn’t ended well.
“We are working with the FMA to address the potential harms to consumers of insurance ‘churn’ – where an adviser recommends their client change insurer provider, for the adviser’s benefit (more commission), rather than the client’s.”
FSCL was calling for financial advisers to provide clients with a comprehensive written statement when advising on replacement insurance cover, which included:
- the specific reasons for the proposed replacement
- the key differences between the existing policy and the new recommended policy
- the client’s duty of disclosure and the consequences of non-disclosure
- clear and full disclosure of the adviser’s fees or commissions
- how the replacement policy will be implemented.
Ms Taylor said that while the FMA’s report focused on life insurance, FSCL’s experience showed likelihood of churn across the insurance industry, including for health, disability and protection insurance.
“A typical case is where the client has failed to disclose a pre-existing medical condition for which they had cover with their existing insurer. Unfortunately, the failure to disclose the pre-existing medical condition to the new insurer has resulted in a declined claim some months or years later.”
While the vast majority of financial advisers provide expert and considered advice to their clients, Ms Taylor said it was a small number of advisers that let the industry down.
“It’s important that the industry works as a whole to lift standards, for the benefit of consumers.”
She reminded consumers that a free, independent ear was always available in the form of the various dispute resolution schemes such as FSCL, for any problems consumers were having with their financial adviser.