Most financial planners were shocked to learn about Comminsure’s claims management strategies.
These have been well chronicled, in particular by Adele Ferguson and others from the “Money for Nothing” expose, which featured on the ABC’s 7.30 Report, and elsewhere, in March 2016.
This prompted Dover to introduce extra training for advisers to alert them to the need to not naively assume good faith on the part of the insurer when it comes to making a claim. Despite the general law rule that the insurers must always act in good faith it had become obvious that many don’t.
We explored the implications and complications of this revelation in an article published in Risk Adviser on 11 May 2016. You can read this article here: If Mary was your mother, and we recommend you do so before reading the remainder of the practice note.
Mandatory clause in every SOA
Subsequently Dover introduced a mandatory rule for all risk insurance statements of advice (SOA) to the effect that advisers must discuss non-monetary matters with clients when providing risk insurance advice.
These discussions must be recorded in the SOA in terms like these:
“Non-monetary matters impacting our advice to you
The best insurances are rarely the cheapest insurances.
We have considered matters other than just premiums when selecting the insurer whose products are in your best interests and most appropriate to you.
These non-monetary matters include the scope of the insurance cover and the insurer’s:
- policy definitions for critical insured events (eg its definition of a heart attack)
- reputation and corporate culture
- philosophy on claims management and
- general dealing with clients and their bereaved families.
We want to be as confident as possible that your claims will be paid in full and on time.”
Our discussions with advisers at the time showed different advisers had different impressions of different insurers. There was no firm consensus as to which insurer was best or worst. Each adviser’s opinion tended to be determined by their previous experiences: some would swear by a particular insurer. Others would swear at a particular insurer.
So, in the absence of objective data, Dover refrained from mandating which insurer should be used.
Adviser Ratings Survey on insurer claims management practices
This changed in December 2016 when Adviser Ratings produced an infographic depicting the results of their survey of 1017 advisers between 19 October 2016 and 9 November 2016. You can read the original materials here: Adviser Ratings – Life Insurance Survey Info Graphic.
What are the implications for your clients?
1017 advisers participated in the survey. That is a fair sized sample. Obviously their individual opinions were influenced by a variety of factors including, one hopes, their own experiences and, one expects, the negative publicity connected to the “Money for Nothing” expose from the ABC’s 7.30 Report in March 2016.
Your advice has to be your advice, and has to be underpinned by sound reasons overwhelmingly in your client’s best interests, such that your advice prioritizes your client’s interests and is appropriate to their circumstances.
Your advice has to be based on your experiences and knowledge, and Dover does not dictate SOA content to its advisers. Our concern is always that the client’s best interests are dominant, and your advice is appropriate to your client and prioritizes your client’s interests.
Two general propositions for your risk insurance SOAs
However, as general propositions, one can say Dover’s SOA review team will generally accept a recommendation that:
- a client who has risk insurances with a lower ranking insurer should switch to a higher ranking insurer on the grounds that the higher ranking insurer has better claims management practices, even if this increases premiums and
- a client who has risk insurances with a higher ranking insurer should not switch to a lower ranking insurer because to do so would prejudice the client’s claims management expectations, even if this decreases premiums.
These are only general propositions and there will be many exceptions and variations. In each case, as always, your SOA should carefully explain your reasons in a clear, concise and effective manner so your client can decide whether or not to accept your advice. We certainly believe an insurer’s claims management reputation is a reason for recommending that insurer, or not recommending that insurer, as the case may be.
Premiums are obviously an important consideration when advising your clients on risk insurance matters. But if the claims management processes are not up to scratch then the cheap insurance premiums suddenly become very expensive.
As always, you must provide advice that is in your client’s best interests, is appropriate to your client and prioritizes your client’s interests.
If in doubt discuss your draft SOA with Dover’s SOA review team before you submit it for review.