No doubt many of us have read in disbelief details of the annual Darwin Awards, stories of people who have, through amazing stupidity, contributed to their own demise.
One candidate is the New Zealand driver who refused to use seat belts despite being fined on many occasions. He went so far as to wear T-shirts that had the image of a seat belt printed on them in a bid to fool police. Sadly, he was recently killed in a motor vehicle accident because he was not wearing a seat belt.
Similarly, we are appalled and frustrated by the Stella Awards, stories of people who have perpetrated incredibly foolish acts but have succeeded in avoiding the consequences, usually by having an innocent party compensate them for it.
Again, a favourite is the woman who successfully sued a department store because she tripped over a child running around the store. Of course, the child was hers.
Sadly, within the financial services insurance industry, advisers and clients on occasion must feel inclined to make their own awards.
The criteria would be situations where an insurance company makes what appears to be a fundamental error or multiple errors that the adviser and/or their staff discovers and are often required to reconcile and correct so the client is not inconvenienced or is minimally inconvenienced.
No one is perfect and mistakes do happen, so when the correction process is relatively brief and no real harm is done, this should be considered as part of the give and take of business. A quick sorry and thank you should be the end of it.
At times, however, the extent, frequency or impact of the error may be such that more is required.
On these occasions all parties should be sufficiently professional and respectful of each other that they can sit down and reach a reasonable and equitable outcome. Unfortunately, in the normal course of financial services, this does not always happen.
It is not unusual for the error discovery and correction process to extend over a lengthy period of time such that there is a material impact on the adviser’s business. When the adviser contacts the insurer and asks for some form of compensation, inevitably the line goes dead.
I recently asked advisers if they had encountered situations such as this. Their responses provided an interesting perspective on:
> how often these issues arise;
> how long they can take to correct;
> the wide range of errors that occur; and
> the impact, financial and otherwise, errors can have on the adviser, their staff and business, and similarly on the client.
Examples of errors include:
(i) Incorrect exclusion clause issued to a client, not once but twice. Client underwent unnecessary medical tests and the adviser, even though not at fault, lost credibility in the eyes of the client;
(ii) The old standby of a letter cancelling the policy not being actioned and then the client having to fight to obtain a refund for overpaid premiums;
(iii) Policies issued with incorrect ownership or benefit details;
(iv) Insurance company staff providing incorrect information which, when used by the adviser, damages the adviser’s credibility;
(v) Confirmation of a new servicing adviser lost by an insurer, not once, not twice, but three times; and
(vi) Also included were various errors similar in kind but within the investment arena.
But the ‘award’ goes to ‘The Life Insurer that Caused a Ton of Trouble’.
Between November 2005 and April 2008, the adviser and their staff documented in excess of 100 interruptions to their work schedule by way of phone calls, e-mails and internal meetings in order to correct errors made to one client’s policy.
Errors included, on multiple occasions:
> mistakes made with premium deductions such that the policy was cancelled; and
> incorrect commission paid or written back.
Correcting action by the adviser included, on multiple occasions:
> reconciliation of outstanding commission and premiums needing to be prepared;
> arranging for the issuing of new policies;
> explanations to the client having to be made;
> lodging of complaints; and
> speaking and waiting on the phone, remaking unanswered calls, etcetera.
In excess of 80 hours of adviser and staff time was lost.
Eventually, the cost to the adviser’s business was so great they contacted the insurer and detailed what had happened, when and how much time was lost. An invoice was sent to the insurer in which compensation was sought.
Within days the insurer contacted the adviser and offered a settlement of 25 per cent of the original invoice; however, in the circumstances the adviser felt this was unfair and asked for the matter to be given further consideration.
The next day, the insurer withdrew its offer and, so far, has refused to discuss the matter further.
A little over six months ago our licensee reduced its approved list to the products of four appointed insurance partners.
A major driver for this initiative was the belief that the risk insurance advice process could only be made more efficient if licensees better used the leverage of their risk insurance production.
We are not where we want to eventually be but we do have an internal resolution process that means, within a matter of a few days, client and adviser issues alike are discussed openly in an atmosphere of all parties wanting to achieve a mutually acceptable outcome.
One practical outcome of this was the acknowledgement by one of the insurers that their handling of a total and permanent disablement assessment had not gone as smoothly as they would have wished. As a result, they offered the client a $10,000 ex-gratia compensation payment in addition to the claimed benefit amount. This offer was made without the need to make a complaint. The insurer was simply asked to consider whether or not it felt compensation was warranted.
Other licensees may approach problems such as those set out above in a different way. For example, if they have a preponderance of their business with one or two insurers, they may feel there is sufficient leverage such that they can mitigate problems arising with those insurers.
Within the risk insurance advice process there is naturally a focus on the policies that are recommended and whether they are appropriate to the needs of the client, but this is not the only factor that should be assessed. Ask any client or adviser who has been caught up in the time-consuming, soul-destroying process of error correction and resolution and they will tell you how important it is to be able to get these matters fixed quickly, easily and equitably.
Those on the distribution side of our industry might consider the merit of only dealing with insurers that are prepared to hold themselves accountable and will seek equitable outcomes when disagreements arise.
Those on the manufacturing side of our industry should consider the commercial and ethical benefits associated with acting in an accountable and equitable way with those who would otherwise recommend their products.
Col Fullagar is the head of life risk at Challenger Financial Services.
