The FCA recently published a report on the general insurance distribution chain and warned general insurance firms that it “will not hesitate to intervene” if firms fail to meet their obligations to customers.
Rules introduced from 1 October 2018 following implementation of the Insurance distribution directive are directly relevant to the manufacture and distribution of GI products.
These rules include the obligation on all firms involved in the GI distribution chain to act honestly, fairly and professionally in accordance with the best interests of their customers and also consider the value customers ultimately receive from their products and services.
Whilst the FCA report found ongoing failings in relation to a number of products, mainly travel, mobile and some add-ons, such as motor gap cover, there are clear messages from the FCA that relate to all GI policies, irrespective of the product type or who is selling it.
The mortgage broker or IFA’s role in this is key. A broker’s value is of course in the advice that they offer and in sourcing the right products for the individual customer needs. If you ran a shoe shop you would not simply sell size nine shoes just because it made your life easier – clearly one size does not fit all. Not only would most customers rightly feel aggrieved that the shoes aren’t fit for purpose, but they would also be unlikely to come back to the shop for their next pair.
Most brokers will source a mortgage from a range of products, so they can recommend one that fits the individual’s needs, and home insurance is no different. With an advised sale the customer is far more likely to get appropriate, valuable cover at the right price.
It is easy, however, to fall into the trap of thinking that a policy including all the bells and whistles is the best for all your clients, or that a one or two question quote process is quick, easy and reduces the risk of non-disclosure, but where does that fit against the FCA’s stated requirement of firms to act in accordance with the best interests of their customers and to consider the value of that purchase for the customer? The FCA will be as critical of a firm over-selling on cover that the client would never use as they would underselling an inadequate policy.
Yes, the insurers and providers have a responsibility to make sure that insurance products are well designed and underwritten, but equally the broker has a responsibility to ensure they have access to a broad GI product range so they can offer the right products that match each clients’ specific needs and expectations.