Pay particular attention to the switching rules

Statements of advice recommending clients change insurance products, ie switches, need to comply with paragraphs 154 and 155 of RG 175 paragraphs 154 and 155 of RG 175 regarding the costs, benefits and other significant consequences of the switch for the client.

Advisers should also be more open minded on whether the client’s existing insurance arrangements are effective. Products have relatively uniform characteristics, and often there is no significant difference for the client. Lower premiums can be a reason to switch, but the saving has to be material and not trivial. Better service can also be a reason to switch, but the extra cost must be explained to the client in the SOA.

Usually the decision to change policies will be driven by dollar based economics, ie a better after tax premium to after tax benefit ratio. But non-dollar based benefits, such as perceived expected superior service, can be a reason to change provided any additional cost is explained in the SOA.

Advisers should be prepared to recommend their clients stay with their policies and not lapse them when it is in their best interests to do so, is appropriate to the client and where this prioritises the client’s interest over the adviser’s interests.

Obviously sub-section 29(3) of the Insurance Contracts Act must be drawn to your client’s attention and you must take reasonable steps to prove you have advised your client to disclose all relevant matters including health matters to the new insurer.

Make sure the new insurer has accepted your client’s application and the new policy is in force before you lapse the old policy, to ensure your client has continuity of cover.

The Dover Group