These two new stories are from different sources and have in common that the underlying cause of the complaint could have been so easily avoided. The other thing they have in common is that they represent an all-too-familiar tendency to strive for the ‘sale’ to the detriment of all parties in the end.
There’s no question that the real business cost of the compliance regime we are now managing pushes advisers into positions of stress in terms of cash flow.
Ironically, this means that when we should be fulfilling the ‘new’ advice principles, out of necessity we are anxious to make as many premium sales as possible to cover compliance costs.
In this environment communication sometimes suffers.
That’s ironic, because the regime is supposedly achieving a more effective level of communication with our clients.
The irony is that this effectiveness is ostensibly achieved by more written communication, and yet there’s less time for the necessary verbal discussions.
Without this discussion time the client isn’t always afforded the ‘plain English’ view of the ramifications of their decisions, as well as the opportunity to quickly inform the adviser that they are confused or unhappy.
Case number one is a simple story: a client came to a new adviser and requested that his existing policy be reviewed or replaced to reduce premiums without losing any benefits.
In other words, he wanted the same cover for less money.
The policy was for key person loan protection, indicating that the client was insurance ‘intelligent’ and understood their basic needs.
There was trauma with a buy-back option incorporated into a term and total and permanent disablement structure. No current needs analysis was conducted (in other words, the adviser fulfilled an order rather than provided advice). Of course, there is another side to that coin — the client’s focus was purely on cost, not need.
A new policy was recommended and sold that reduced the client’s premium spend by close to 50 per cent. It did not have trauma buy-back and the client was not made aware of this within the Statement of Advice (SOA).
The inevitable happened and a trauma claim was paid out. The business still needed cover on this proprietor, yet, without a buy-back, there was now no opportunity to choose to purchase cover for future death risk. This represented a serious future risk for the adviser. To make matters worse, the sum insured was inadequate for current needs, so the lack of a fresh needs analysis could be seen to be negligent.
The salient points here are:
– a request from the client to replace like with like was unfulfilled;
– no needs analysis was performed to bring the client’s portfolio needs into current focus;
– with no advice within the SOA regarding the loss of the buy-back, the client was not making an informed decision; and
– neither party questioned the obvious lack of logic in such a huge decrease in premium being achievable with no loss of existing benefits?
As a generalisation, the advisory fraternity often accepts a client’s request to provide the best cover at ‘cheap’ prices rather than deftly and skilfully steering the client to an acceptance of the value for money they currently have. Why is that?
Why do some advisers allow themselves to enter a new client relationship on the fundamental principle of shopping for price when they know that if this is the basis for the initial relationship, then it will be the premise under which the client will always conduct the relationship?
While it’s interesting to ponder these questions, the complaint has not been resolved.
The second case was tabled at the recent Financial Industry Complaints Service (FICS) conference.
Interestingly, this intriguing case was described in terms of the actions of the insured and the insurer only.
But a different angle becomes clear when we consider the adviser’s role and what the outcomes could have been.
At personal statement time, the insured disclosed the existence of, and brief details relating to, anxiety and depression, alcohol consumption and asthma.
Several of these ‘yes’ answers should have triggered the completion of additional questionnaires for more information. However, no additional questionnaires were ever provided by the adviser or sent by the insurer for the insured to complete.
For reasons known only to them, the underwriters chose to accept the case at standard rates. This should have rung warning bells for the adviser (who had actually completed the application with the client’s dictated answers).
Of course, when a claim was then submitted to the insurer for a “nervous breakdown” 15 months after the policy was taken out, it was denied on the basis of non-disclosure. This decision was, on the evidence, supportable; there was significant non-disclosure of a range of consultations with a second doctor who was not mentioned in the application at all.
Stand back and take a long, hard look at this (all FICS complaints once determined can be found at www.fics.asn.au).
Regardless of the claim outcome, this should never have become a denied claim because it should never have been on the books in the first place.
The old adage ‘prevention is better than cure’ is never more poignant than in these situations, which serve only to leave a very nasty taste in clients’ mouths no matter how much they themselves contributed to the poor outcome.
We all complain regularly that it’s only the bad news that gets heard by the public in respect of life insurance claims.
In this case, we brought the outcome on ourselves; this client should never have been granted cover. Yet a combination of adviser and underwriter laxity has created a statistic that shouldn’t exist.
And the client is no worse off.
Either way, he was not going to have insurance cover. It’s just a shame that it had to be retrospective at claim time and was not nipped in the bud at the beginning. All this happened recently, too, in an era where you wouldn’t imagine lax underwriting to occur. (The case went into force in 2003.)
Dissecting this case step-by-step, one has to ponder:
– why the adviser was completing the personal statement himself in this day and age. Much has been debated about this, but if our esteemed legal colleagues are to be listened to, this should only be done within set, practised and severely restrictive guidelines — or not at all;
– why, when the adviser was clearly seeing answers that should have rung warning bells, didn’t he change tack and consider the case had become a touch-and-go one;
– indeed, why didn’t the adviser know there was a history of nervous disorder before he finalised the fact-finding and needs analysis processes? I am coming around to the belief that the personal statement is simply a sub-set of fact finding. As such, it should be partly or fully completed as a part of the initial rather than the post-sale process;
– Given that the application ended up at the insurer’s office, incomplete, how did it get beyond the initial assessment phase without questionnaires for asthma and nervous disorders? A personal medical attendance report (PMAR) was requested, so there was plenty of time to go to the client to obtain these questionnaires;
– any underwriter that considers it is easier to accept a case than not worry about the outcome at claim time (if indeed this is what happened in this case) has little insight into the moral responsibilities of their role;
– there was no goodwill in the final outcome of this case. The client was disenfranchised regardless of the reality of their failure to disclose, the adviser certainly must have been unpopular and would have been left with a cloud over their head for an unpaid claim regardless of who was right or wrong, and the insurer is never in a winning situation when they are forced to deny a claim.
Let’s go back to the issue of the adviser’s involvement.
When I first read this case summary I thought there was no adviser involvement, until I went back to check the initial storyline and discovered that the adviser had completed the forms.
The dilemma for any adviser is once you have found a client, it’s a no-win situation to have to turn your back on them for insurance funding if they are uninsurable.
It is an infinitely more logical outcome not to follow through on selling insurance in a very doubtful case than to follow through and allow a case to complete when you know there has been mishandling along the line (by anybody) and it’s highly unlikely that a claim would be met.
This is very short-term thinking and frankly contributes to the less-than-brilliant public relations that our industry seems to so successfully perpetuate.
Sue Laing is managing director of the risk store. E-mail: sue@theriskstore.com.au.
