From Michael Ward
Regarding my contribution to last week's Mortgage Strategy (Network Strategy, page 25) I would like to make it quite clear that Enable Mortgage & Insurance Network will be providing professional indemnity insurance to our appointed representatives within the costs we have already published – unlike some of the others in last week's panel.
Enable has therefore effectively already priced PII whereas many others have yet to work out what their costs will be. However, limiting advisers' exposure to the risk of complaints is not really about putting in place PII. PII is simply a limited fund created through the payment premiums for unexpected claims and it can be exhausted quickly, become more expensive or be withdrawn by the insurer altogether.
Limiting advisers' exposure to the risk of complaints is really about getting the products and advice right first time. This is why we at Enable are concerned about a number of insurance products currently in the marketplace, in particular ASU.
To date the public debate over ASU has centred on the issues of regular premium vs single premium and whether £3.95 or £5.95 is the right price for this short-term cover. These debates represent little more than a smokescreen for the very real problems with the products that most brokers sell.
For instance, the sickness cover provided is too short for a mortgage – a mismatch of 12 monthly benefit payments against a 25-year commitment; providers can give as little as 30 days' notice to change premiums; and providers can give 90 days' notice to unilaterally cancel the client's cover. (Would this be acceptable for life and CI cover?) If these – and some of the other restrictive conditions these policies can carry – are being pointed out and emphasised to each buying customer then the adviser may avoid the majority of the risk. If, however, he is not doing this, it may well be the Financial Ombudsman Service that ends up having the last say.
As Alison Hoyland of the FOS has said: “What is going to be relevant is that the main features of the contract are pointed out, which also includes exclusions”.
To reinforce our concerns about these products, statistics from the ABI/CML show that though over three million policies were sold between 1998 and 2003, the number of in-force policies for that same period only rose by one million – clearly not something the client truly values.
Enable Mortgage & Insurance Network