United Kingdom
All firms failed to meet sale requirements finds FSA study - Kevin Farrell
An unimpressed FSA has recently written to firms which sell non–investment protection products, giving them six months to conduct a full review of their “unacceptable” sales processes and controls. Firms have been given six months to confirm to the FSA that the review has been completed and the firm is compliant with the FSA ICOB rules.
The FSA action follows an FSA study of Critical illness cover sales which found that, in 95% of the 234 cases sampled, the customers were not told of the significant exclusions and limits of the policy, whilst in 86% of the calls sampled the customer was not told what diseases and conditions were normally covered and which were not (a pretty crucial error with these policies).
We believe that the bar that is being set by the FSA is higher than many firms seem to anticipate, and the letter to compliance officers should be seen as a “final warning” from the FSA to get it right. We know that many firms have made efforts to develop effective and compliant processes, but are still falling short of FSA expectations.
The FSA conducted a review of 294 sales calls by 11 major firms (in which Critical Illness cover was sold) and found that all 11 of the firms failed to meet the requirements of the Insurance Conduct of Business Sourcebook (ICOB) in some way.
The main issues with the sales were:
- It was not clear to customers if they had received advice (i.e. actually been recommended to buy a product which was right for their needs), or just been given information about a product and left to make up their own mind.
- Firms did not provide enough information about the policy's main features to enable the customer to make an informed buying decision.
- Significant exclusions and limitations were not highlighted.
- Firms did not make clear to customers the importance of disclosing all material facts, especially pre-existing medical conditions.
To confidently meet the FSA requirements, BDO believes that firms selling protection business will need to critically and objectively assess their current processes and controls, revise them where necessary, and ensure the controls have been fully implemented by sales staff. Firms will also need to see if their training processes and their Training and Competence scheme are fit for purpose, and constructed with the customer in mind.
It would be unusual and surprising if the FSA did not require at least some firms to make their revised procedures (and sales calls made under those procedures) available for review by the FSA after May 2011. A second failure would not be an option – the FSA are already talking about Enforcement action...