How can you make sure you practice a form of safe insurance?
Jargon generalisations
Avoid jargon generalisations. There can be a difference between what is said and understood, what the client hears and relies upon and what may actually occur at the time of claim. Ensure statements are objective and factual.
Application completion
How the application is completed is more important than by whom. Follow a set routine and follow it with absolute consistency.
If you are challenged, other clients can testify as to your standard procedures. The consistency of their statements with your position as distinct from that of the other person may assist in swinging the odds more in your favour.
Directive advice
When you seek legal advice, your solicitor will set out the options and the pros and cons of each — they will not make the decision for you. This is a good model to follow.
Never give directive advice. You may be wrong and even if you are right, you set a precedent that may influence the perception of your conduct in a situation where you are being challenged.
Application questions
Questions in the application should always be asked exactly the way they are set out. Short cuts can lead to problems and misunderstandings at the time of claim.
Occupation category
Ensure the right occupation category and duties are recorded, otherwise the insurer may have the legal right of adjustment at the time of claim. This may mean a proportionate reduction of the benefit amount or even the declining of the claim and policy.
Duty of disclosure
The duty of disclosure must be fully understood by the client.
The key elements are:
* the duty rests with the client;
* disclosure is assessed against what it would be reasonable to expect a person in the circumstances would disclose;
* the duty extends to what the client “could reasonably be expected to know” and could go beyond the questions in the application;
* disclosure of information that decreases the risk, is of common knowledge, or for which disclosure is waived, is not required;
* the duty continues until the application has been accepted. If prior to this, there is a material change in the client’s circumstances (health, occupation or pursuits) the insurer must be advised.
Product description
Identify those areas of the policy you describe to clients, script a concise explanation, check it with the insurer to ensure it is correct and use it consistently.
Inconsistency
Document procedures and ensure you and your staff comply with them as this will provide a basis for consistency of practice for you and anyone introduced into your business.
If you are ever called to account, these procedures and the rate of compliance will lend credence to any statements made. The results of procedure audits could well swing a judgement in your favour.
As part of the positioning of your business with a new or existing client, include a statement about how you have documented procedures to ensure the business complies with appropriate legislation and regulation.
Consistency
You should recommend the most appropriate policy to your client, not necessarily the one with the longest list of ancillary benefits or the one that scores the most points on risk research.
A recent legal opinion stated:
“The most appropriate product is the one which most closely matches the needs and objectives of the client… it is not sufficient to simply recommend the most highly rated product; indeed a practice in which this is done as a rule may demonstrate deficiencies in the broker’s conduct.
“Rating systems measure against objective criteria. It is the adviser’s role to apply that data in the subjective evaluation of the client’s needs.”
Risk research does not provide solutions; it provides options. The role of the adviser is to take those options and add value by tailoring them to specific client needs.
Limits of authority
Know the limits of your authority and only operate within them. Be aware of what can and cannot be done by you and to you under the various agreements you have with your product providers.
If an insurance company requires approval to be given for a particular action, they are reserving the right to refuse permission, so do not take it for granted that approval will be forthcoming.
File notes
There are three kinds of file notes.
(i) Summary file note
These only record the critical facts. The file note is a memory jogger in case details have to be recalled at a later date.
(ii) Literal file note
These record as much information as possible, including details of a conversation or the circumstances surrounding an event.
Use them when there is a reasonable chance someone is looking to ‘set you up’, or there is a chance that some form of action, legal or otherwise, will involve you or is already involving you.
(iii) Focused file note
These are used to record details of repetitive situations, eg. if a non-disclosure occurs you may be required to provide answers to a number of questions about the recommendation process.
If a consistent procedure was followed, the answer to many of the questions will already be known. Only exceptions would need to be recorded.
Fraud
If someone is going to commit a fraud they may seek to set you up, so think through where exposure could lie, work out protective measures and implement them such that they become an automatic part of how the business is conducted.
People generally look for an easy target. So if your record keeping, systems, documentation and procedures are poorly organised, the chances that you could be picked as a target for a fraudulent act increase.
If, as part of corporate profiling with clients, a prepared script was included about the security and efficiency of your administration system you will reduce the risk of being targeted.
You have a fiduciary duty to clients and information obtained is subject to a duty of confidence by virtue of that relationship, but this duty is subject to a defence of disclosure for just cause or excuse such as if disclosure is in the public interest. If you become aware that a client is committing a fraud or there are reasonable grounds to suspect they are committing a fraud you should:
* communicate your concerns to the client and advise them of the consequences of a fraud;
* indicate, if the client refuses to take corrective action, that you will not act further on their behalf;
* advise the broker if there does appear to be a fraud, and they will have a duty to pass the information on to the insurer.
Replacement business
If the movement of business from one company to another can, with the wisdom of hindsight, be seen as in any way arbitrary, the risk factor increases considerably. There are no safe shortcuts.
Be careful to ensure there is full disclosure of underwriting information. Non-disclosure may negate a claim under the new policy that would not have affected a claim under the previous policy.
If business is replaced, time-based exclusion clauses and the three year misrepresentation facility that enables a policy to be avoided by the insurer due to misrepresentation rather than fraud, will be reactivated.
Any product comparison must enable the client to make an informed decision. They should not be overly complex or confusing.
Compliance
Regulations governing compliance procedures are a matter of public record so if someone wants to commit a fraud they may potentially be able to work out a way to manipulate them.
The regulatory standard and the passing of compliance audits must be viewed as the minimum required. If you feel additional measures would be prudent, look at ways to implement those measures.
The judicial system
Avoid litigation. Consider:
* the time you will devote to preparing the case, attending briefings, and going to court;
* the emotional energy you will expend;
* the impact on productivity;
* how your reputation will be affected;
* what legal costs will be incurred;
* the impact this will have on your family and business.
If you lose you may not be covered by professional indemnity insurance, or you may lose the facility to renew it. If this happens, you will not be able to continue your career as a financial adviser.
The good news
By implementing safe insurance practices you not only reduce the chances of something detrimental happening to you and your business, but you significantly enhance the value of your business.
How much more valuable is a business where a purchaser can pick up a file and immediately “know the client” or be confident that there are no hidden compliance or legal problems?
It is unlikely that any activity will provide such a large return for the time expended than practicising safe insurance.
Col Fullagar is marketing manager, risk products withAssociated Planners .
