Not ensuring continuity of cover when changing insurance policies

In many ways, the title of this mistake says it all. Continuity of cover refers to situations where the origins of an insured event can be traced back to the period of time during which a previous policy applied. It is critical that the new insurance policy be prepared to accept liability for any such events, rather than exclude such events, for obvious reasons: if it does not, the client may find themselves unable to make a claim as a direct result of your recommendation to change policies. Is that a lawyer’s letter I hear arriving? 

Murphy’s Law is the one to remember here: if something can go wrong, it will. If there is a .1% chance that a situation requiring continuity of cover will arise, and you advise 500 clients over your career (2 a month for 25 years will get you to this number), then the probability that you will have a client for whom continuity of cover is an issue is 50%.

This, of course, is a general principle that can often be overlooked: things with a low probability of happening, still happen. (Forrest Gump was more prosaic: &*#$ Happens!)

More than anyone, insurance advisers should remember this principle. If you advise enough clients, then you can be sure that a claim will eventually be made. For this reason, every policy that you recommend should be assumed to be the one that will result in a claim. In your mind, work backwards from the point of a claim and identify everything that needs to be in place at that time – and then ensure that these things are in place.

This principle can be extended, for example, to your advice to your client that they should disclose everything about their health and other situations when applying for insurance. Get them to imagine that the insured event has already happened and a claim has been made. The insurer will not pay out a large sum without investigating the policy and seeing if there are any grounds for not paying. This is the commercial reality. Any client non-disclosure renders the premiums that they are about to pay potentially useless; at best, the non-disclosure means that the client or their bereaved loved ones has a fight on their hands.

The Dover Group