Insurers and innovative products can help reduce risks faced by brokers

Intermediaries offering life insurance products are at professional risk – they may provide inappropriate financial advice to customers and inadvertently offer them inadequate products. They are then open to lawsuits, which can be punitive, and the consequences for the customer can be dire.

Greg Buckle, head of product development at Metropolitan Retail, explains that existing legislation places the onus on brokers to provide appropriate advice to their customers on all financial matters. “The broker therefore needs to be able to perform a complete Confidential Customer Needs Analysis (CCNA) (the name was recently changed) on a customer; identify any gaps/shortfalls in the customer’s existing risk insurance portfolio; recommend the most appropriate product/s that best meet these needs, based on the specific circumstances of the customer; and maintain a record of the advice provided and decision taken, for compliance purposes.”

Buckle cautions that when any of these requirements are not met, the advice provided may be questioned. “The broker may face legal action or unfavourable adjudication from industry ombudsman, professional bodies and other regulatory mechanisms.”

Buckle explains that in the context of risk insurance, there are some obvious scenarios that may lead to the initial and on-going advice provided to the customer being questioned. “For example, a broker may not have understood the product and its benefits, and recommended an inappropriate product. The broker may also have created expectations on the part of the customer, in terms of breadth and amount of cover that will not actually be met by that product.”

There are several other examples of the broker falling short of the requirements imposed by law. A broker may not be fully aware of all the product alternatives available, leading to the recommendation of an inferior product (in terms of price, benefit coverage, competitiveness of claim criteria terms and conditions). A broker may also recommend inappropriate insurance cover if an inadequate CCNA is performed.

The sale of an incorrect product may disappoint a customer at claim stage if the claim is repudiated in full or the settlement amount paid is below expectations, – particularly where other products available in the market would have admitted the same claim, settled at a higher amount. A broker may also fail to upgrade the customer to improved and more modern versions of benefits as they are released into market. In some cases, the broker could even be misled by innocent or negligent non-disclosure by the customer at application stage that ultimately has a bearing on a claim.

Buckle says that while such risks can never be completely eliminated, some can be significantly reduced. One way of ensuring that brokers can fulfill their professional and legal obligations and reduce their risk exposure is through a close and supportive relationship with the insurance company. “For example, we would provide our intermediary force with CCNA tools; provide regional legal advisors to assist brokers with legal interpretation and compliance requirements; and offer them cost-effective bulked access to compliance service providers.”

Some insurance products are also designed with the view to assist the broker in complying with legislation, hence minimising professional risk, and at the same time best serving customers. Buckle says Metropolitan’s recently launched Odyssey RiskPlan product includes complimenting service offerings to reduce the advice risks faced by brokers.

“One such way is through its simplicity. The increasingly complex products on offer are the cause of many of the advice risks faced by brokers. The proliferation of differentiated and complex benefits, product options and add-ons are hard to understand and explain to customers. This makes it extremely difficult for intermediaries to understand and draw valid comparisons across the products they market.

“Furthermore, product complexity makes the sales process time consuming because of the extensive explanations required and it increases the risk that the customer’s long-term expectations are not in line with the benefits that will actually be provided by that product. A good product will cut out complex and superfluous product features/options, leaving only best-of-breed offerings for brokers to advise on. This in turn reduces the amount of time taken by intermediaries to understand the product and will reduce the risk of providing advice without having a complete understanding of the product. Simplicity will also reduce the risk that unrealistic expectations are created on the part of the customer during the sales process.”

Another key feature in an insurance offering would be claims certainty. Buckle says most advice risk faced by intermediaries relates to the manner in which the recommended product meets the expectations of the customer when a claim is submitted. “Benefits, product terms and conditions should provide brokers and customers with as much certainty as possible that benefits will be paid when a claim is submitted. To illustrate with the Odyssey RiskPlan product - benefit claim criteria and exclusions are objective and transparent, reducing many of the risks associated with claim assessment based on subjective policy wording. Objective claim criteria mean that brokers and customers know exactly what is covered, and what is not.

“Odyssey RiskPlan also tackles other key elements to eliminate claim uncertainty and therefore broker risk. According to the Association of Savings South Africa (ASISA), Metropolitan is the first to adopt the Standard Critical Illness Definitions (SCIDEP) in the design of this risk product. The Critical Illness benefits use standardised critical illness definitions in order to enable valid product comparisons across the market. Breadth of cover has also been considered with a benefit catch-all to protect policyholders against unlisted and/or presently unknown conditions and illnesses. An upgradeability path has been created for customers to take voluntary upgrades to their benefit definitions and pricing, useful because medical conditions, treatment and industry best practices are sure to change over the years to come. The product also comes with a clear and communicated policy on non-disclosure which aims at fair treatment of claims even where there has been non-disclosure by the customer.”

Buckle concludes that in this way the new Odyssey RiskPlan offering aims to decrease broker risk and increase client service and product satisfaction.