The FSA has for some years been concerned about the standard of information given orally to customers during sales of 'protection products' – insurance products that provide financial protection but do not include an element of investment.
In 2008, it introduced specific rules for oral sales of protection products in its Insurance Conduct of Business Sourcebook (ICOBS). But in June 2010, a review looking at how firms were implementing these measures produced disappointing results.
ICOBS rules require firms to make appropriate oral disclosures to customers when selling protection products by phone or face-to-face.
These include making it clear whether the firm is giving a personal recommendation or merely providing information and giving sufficient information about all the policy’s main characteristics to enable the customer to make an informed decision. The firm must explain any significant exclusions and limitations and remind the customer of the importance of disclosing material facts, particularly relating to pre-existing medical conditions.
But a call listening exercise carried out by the FSA in 2009 involving critical illness cover found that only 5% of the calls analysed clearly explained the limitations and exclusions to the cover and over half failed to offer any explanation at all. Nearly 40% failed to explain the customer's duty to disclose material facts and over half left it unclear how the policy would pay out.
The exercise echoed many of the results found in earlier consumer research and mystery shopping exercises commissioned by the regulator, which found widespread misunderstanding among consumers about which illnesses were actually covered by their critical illness policies.
"The consistency of the findings supports our view that there are continuing problems in how information is provided to consumers at the point of sale, and these need to be addressed by firms," the FSA states.
In an open letter (7-page / 287 KB PDF) dated 29th November, it has asked all firms selling non-investment protection products to review their sales policies and procedures to ensure they comply with the ICOBS rules and to confirm in writing within six months that their sales processes are compliant.
Those who cannot meet this deadline must within the six-month period provide a written plan and timetable setting out how and when they will met the required standards.
The letter applies to oral sales of all non-investment protection products, not just critical illness cover. For firms selling payment protection insurance (PPI), the FSA's request is in addition to – and distinct from – the list of common PPI sales failings set out in the FSA's open letter of August 2010 reminding firms of the appropriate sales standards.
"We will continue to monitor closely whether the information provided by firms complies with our requirements," the FSA warns. "Should it come to our attention that a firm is not complying, we will consider the extent of the breach and the appropriate regulatory action."
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