Insurance Providing customer advice

Transcription

1 Insurance Providing customer advice NLD - Compliance Manual - Insurance - March

2 Chapter 1 Providing customer advice 1.1 Scope of service 1.2 Customer Categorisation 1.3 Pure Protection Policies and other policies 1.4 Financial Promotions 1.5 Inducements 1.6 Distance Marketing 1.7 E-Commerce 1.8 First contact on Internet/ 1.9 Business Card 1.10 Status Disclosure & the Key Facts Document 1.11 Oral Disclosure 1.12 First contact by telephone 1.13 Non-Advised Sales 1.14 Advised Sales 1.15 The General Insurance Fact Find Process 1.16 Suitability of recommendations 1.17 Duty of Disclosure 1.18 Existing Insurance 1.19 Affordability 1.20 Policy Summary 1.21 Conclusion of a Contract 1.22 Research Guidance 1.23 Statement of Demands and Needs 1.24 Price Disclosure 1.25 Cancellation Period 1.26 Policy Documents and Cover Notes 1.27 The Required contents of a General Insurance File 1.28 Charging Fees 1.29 Disclosing commission to Commercial Customers NLD - Compliance Manual - Insurance - March

3 Chapter 1 Providing Customer Advice 1.1 Scope of Service Firms must ensure their customers have a clear understanding of the scope of service being provided to them by the firm. In accordance with the rules of the FCA, there are three methods by which an Insurance Intermediary can provide advice on non-investment insurance contracts; Selection of non-investment insurance contracts based upon: (1) A Range of Insurers; or (2) A limited number of insurance providers (panel); or (3) A single insurance provider The term Range of Insurers reflects the fact that an adviser should make a fair analysis of the market with a sufficiently large number of available insurance contracts being considered. Additionally, the firm should have an adequate knowledge of available insurance contracts within the relevant sectors of the market. In general terms, most intermediaries opt for option (1), using electronic research tools to undertake the complex task of reviewing the whole market. Clearly, it would be misleading to offer service (1), when the actual nature of the service will typically fall within category (2) and all advisers should ensure that they actually provide the level of service offered to the customer as detailed within the firms Initial Disclosure Document/Combined Initial Disclosure Document/Services & Cost Disclosure Document (IDD/CIDD/SCDD). The FCA has allowed firms the flexibility of dealing with different product types on a different basis. For example, a firm may opt to offer a Range of Insurers service in respect of term assurance, whereas the firm could offer the products of one insurance provider in relation to buildings insurance. Consequently, the IDD/CIDD/SCDD could vary significantly from firm to firm. Where acting as an independent general insurance adviser, you must act in the best interests of your customer. You owe your customer a high duty of care and must not be influenced by commission, convenience, and advantages to the adviser or by lack of knowledge or experience. You may not enter into commercial arrangements that adversely affect your ability to provide advice on an independent and impartial basis. 1.2 Customer Categorisation There are two types of customer categorisation: A consumer which is any natural person who is acting for purposes which are outside his trade or profession, A commercial customer which is a customer who is not a consumer. Most of the firm s customers will be classed as a consumer. If it is not clear whether a customer is a consumer or a commercial customer, the firm will treat the customer as a consumer. NLD - Compliance Manual - Insurance - March

4 If a customer is acting in the capacity of both a consumer and a commercial customer in relation to a particular contract of insurance, the customer should be classed as a commercial customer. 1.3 Pure Protection Polices and Other Policies The FCA has now split non-investment insurance contracts into two distinct categories: Protection policies pure protection policies that include term assurance, critical illness cover and income protection, and payment protection insurance that is categorised as a protection policy. Other policies - include all other general insurance contracts including car insurance, travel insurance, house insurance. 1.4 Financial Promotions Clear, Fair, and not misleading When the firm communicates information, including a financial promotion, to a customer or other policyholder, it must take reasonable steps to communicate it in a way that is clear, fair and not misleading. If, after approving a financial promotion, the firm becomes aware that it is no longer clear, fair and not misleading, it must withdraw the financial promotion immediately. Pricing Claims Where a financial promotion makes pricing claims, including a financial promotion that indicates or implies that a firm can reduce the premium, provide the cheapest premium or reduce a customer s costs, the financial promotion should: Ensure the pricing claim reflects the price expected to be paid by the majority of customers who respond. If this is not the case, the promotion must prominently state the proportion of customers who are likely to achieve the pricing claims; and State prominently the basis for any claimed benefits and any significant limitations. 1.5 Inducements An inducement is a benefit offered to a firm, or any person acting on its behalf with a view to that firm, or that person, adopting a particular course of action. This can include, but is not limited to, cash, cash equivalents, commission, goods, hospitality or training programmes. In order to avoid conflicts of interest, the firm should consider whether accepting an inducement would conflict with its duties to its customers. 1.6 Distance Marketing A distance contract is one which is concluded under an organised distance sales or service provision scheme and which makes exclusive use (directly or otherwise) of one or more means of distance communication up to and including the time at which the contract is concluded. This means that where a firm normally undertakes its business on a face-to-face basis, but occasionally uses distance means, these contracts WILL NOT be a distance contract. The firm must provide a consumer with the distance marketing information in good time before conclusion of a distance contract. NLD - Compliance Manual - Insurance - March

5 See - The information must be clear, and provided in a clear and comprehensible manner. Where the customer has given explicit consent to receiving limited information, only the abbreviated distance marketing information need be given to the consumer. See - The firm must ensure that the information on contractual obligations is communicated to the customer. This must be communicated to the customer in writing or another durable format that is available and accessible to the consumer in good time before conclusion of the distance contract. If the contract is concluded at the consumer s request, using a means of distance communication that does not enable the provision of that information in writing or a durable medium, in good time before the conclusion of the distance contract, then the firm may provide the necessary information immediately after the conclusion of the distance contract. 1.7 E-Commerce Where a firm carries on an e-commerce activity (sales or advertising carried out electronically) from within the UK, with or for a person in the UK, or another EEA state, they must supply the following information about the firm and its services: Its name; The geographic address at which it is established; The details of the firm, including its address, which allow it to be contacted and communicated with in a direct and effective manner; The appropriate statutory disclosure statement and confirmation that it is on the FCA register, it must also include its FCA register number. If the firm includes details of Fees, it must do so clearly, and unambiguously, indicating whether the price is inclusive of tax and delivery costs. 1.8 First contact on Internet/ If first contact is made with a consumer electronically, there must be the facility for the consumer to print the firm s IDD/CIDD/SCDD and Client Agreement. The location of the document must be clearly visible and the customer should be able to read and print the document in full prior to business being undertaken. 1.9 Business Card During your initial face-to-face contact with a customer, you must hand over your own business card. This provides the customer with a contact name, address and telephone number in the event that they wish to cancel appointments or contact you to clarify certain issues. Please remember that any stationery must be approved by Compliance Status Disclosure & the Key Facts Document Customers need to know on what basis a firm intends to do business with him/her. Prior to the conclusion of any insurance contract, you are required to provide the customer with certain information. See - NLD - Compliance Manual - Insurance - March

6 This information can be provided to customers by using an Initial Disclosure Document. The Financial Conduct Authority has prescribed the format of this document. Firm s should issue their normal Disclosure documents and Client Agreement when advising customers on protection and general insurance contracts. Where the initial contact is by telephone it will not be possible to provide these documents (IDD/CIDD/SCDD and Client Agreement) at first contact, consequently, you should refer to section 1.4 for further guidance. The firm will issue two copies of the IDD/CIDD/SCDD and Client Agreement to their customers and ask them to sign both copies of the Client Agreement to confirm receipt. One copy is to be kept by the customer, and the other by the firm. If the customer does not wish to sign the Client Agreement it must be recorded on the customer file that the document has been given to the customer and when. For the avoidance of doubt, the customer should be encouraged to sign the Client Agreement before presentation of any recommendation. If the customer does not sign the Client Agreement, they should be reminded that, under Data Protection rules, the firm will not be able to process their application as this could include passing on sensitive data to other firms. A new IDD/CIDD/SCDD and Client Agreement letter should be issued to the customer in the event that there has been a material change to the previous document - this rule would also apply to policy renewals. There may be situations where a firm intends providing advice in relation to regulated mortgages, general insurance business or indeed both regulated mortgages and general insurance business. Consequently, you should also provide confirmation of the scope of service in relation to mortgage business, using a Combined Initial Disclosure Document. If the firm does not intend to advise customers in relation to a Range of Insurers, but in relation to specified insurance providers only, an additional list of the insurers the firm selects from or deals with should be made available to the customer. Should you hold yourself out as providing independent advice (Range of Insurers) you must provide a service, which is consistent with service (1) detailed in section Oral Disclosure There may be a number of situations where it is not possible to provide written disclosure prior to conclusion of an insurance contract. In such instances, it is permissible to provide oral disclosure, prior to conclusion of any contract, if; The customer requests this, or; Immediate cover is required. Written disclosure should be provided immediately after conclusion of any contract. (See 1.21) 1.12 First contact by telephone If the first contact with a customer is by telephone, the following information must be provided immediately and prior to proceeding with the conversation: (1) The name of the firm and the commercial purpose of the call; (2) The identity of the person in contact with the customer and his/her relationship with the firm; NLD - Compliance Manual - Insurance - March

7 (3) The scope of the service provided by the firm in accordance with section 1.1 of this chapter. (4) If the scope of the service is not advice in respect of the whole market, the adviser must state that a copy of the list of insurance providers used by the firm is available upon request and confirm whether the firm can advise on all products provided by each insurer with whom it deals. (5) Confirmation that (1) (4) will be confirmed in writing. Immediately after the telephone call, the IDD/CIDD/SCDD and Client Agreement must be issued to the customer along with the restricted list of insurers should the firm provide service (2) as explained in section 1.1 of this chapter, and if the customer has requested this. This procedure differs from the usual requirement for the firm to provide its IDD/CIDD/SCDD and Client Agreement prior to conclusion of an insurance contract, as it may be impossible for the firm to achieve this particularly where the contract is agreed and concluded with the customer during the call. Consequently, the firm must ensure that the Key Facts and Client Agreement are provided immediately after conclusion of the contract Non-Advised Sale It is not our normal practice to allow non-advised sales. However, we acknowledge that may be some circumstances where clients will wish to be dealt with using a non-advised sales process. Where a client wishes to deal on a non-advised basis, prior to any applications being made, the case must be referred to Compliance who will decide whether the case can proceed on a non-advised basis or not. The following applies where approval has been granted by Compliance. In a sale that does not involve a personal recommendation; the firm must ensure that the customer understands he is responsible for deciding whether a policy meets his demands and needs. If this is done orally, the information must be provided to the customer in writing no later than immediately after conclusion of the contract. The format of a statement of demands and needs is flexible in relation to a non-advised sale, and could be- included as part of an application form where the demands and needs statement is made dependent upon the customer providing personal information on the application form. produced in product documentation that will be appropriate for anyone wishing to buy the product. Given to a customer by way of a record of all his demands and needs that have been discussed Provided to the customer by way of a key features document 1.14 Advised Sales A firm must take reasonable care to ensure the suitability of the advice provided to any customer who is entitled to rely upon its judgement. NLD - Compliance Manual - Insurance - March

8 When arranging a general insurance/pure protection/payment protection contract you must take reasonable steps to ensure that the customer only buys a policy under which he/she is eligible to claim benefits. You should establish the customer s demands and needs by using information readily available and accessible to you and by obtaining further relevant information from the customer, including details of any existing insurance cover. The sale of Pure Protection and Payment Protection Insurance policies has been targeted by FCA as an area of potential consumer detriment, and in order to improve selling practise, the FCA have included extra rules and guidance when dealing with customers. Protection Policies: The firm must consider the customer s information needs, and should ensure they are provided with sufficient information to allow them to make an informed decision. The firm must tell the customer orally about the main characteristics of a policy (significant benefits, limitations and exclusions, duration and price) during sales conversations before the customer makes a decision on whether to buy the cover. In addition, for PPI contracts: The firm must take reasonable steps to check that customers are eligible to claim under the policy before selling the insurance, and tell the customers if they would not be able to claim under one or more elements of the policy. You must remind customers of their right to cancel the policy within 30 days and that they should check the policy documentation within the cancellation period The General Insurance Fact Find Process Before you give a personal recommendation to a private customer, you must be in possession of sufficient personal and financial information about the customer in order to make an informed recommendation. This would include having sufficient information concerning the customer s demands and needs Suitability of recommendations You must take reasonable care to ensure that any recommendation is suitable for the customer s demands and needs, taking into account the contract s level of cover and cost, and relevant exclusions, excesses, limitations and conditions. You must not make any personal recommendation to a customer to enter into a general insurance contract/pure protection contract or to vary an existing insurance contract unless the recommendation, transaction or variation is suitable for the customer having regard to the facts disclosed by him, his demands and needs at the time of the recommendation and other relevant facts, which you are, or ought to be, aware. If at any time in arranging the policy you discover that any elements of the cover do not apply, you must inform your customer in order that he/she can make an informed decision on whether to buy the policy or not. When providing advice based upon a fair analysis of the market (i.e. Range of Insurers), you must not make a recommendation to buy an insurance contract if you ought reasonably to be aware of a generally available insurance contract, which would be more appropriate to the demands, needs and circumstances of the customer. In simple terms; your recommendation should be the most suitable to meet the customer s needs. NLD - Compliance Manual - Insurance - March

9 Additionally, you must consider a sufficiently large number of insurance contracts that are generally available within the UK market and you should have an adequate knowledge of and have regard to products available within the market as a whole. As mentioned earlier, the simplest and possibly most effective method of achieving this objective is to use specialist software. In summary, an insurance contract or variation of an existing insurance contract will be suitable if; you have considered, in full, the customer s circumstances, demands, needs and other relevant facts which you reasonably ought to consider; whether the level of cover is sufficient for the risks the customer wishes to insure; you have considered the relevance of any exclusions, excesses, limitations or conditions applied to the contract in the context of the customer s demands and needs; the customer can afford to enter the insurance contract; (this would be demonstrated by the completion of a budget planner) the insurance contract is actually suitable for the demands and needs of the customer; the insurance product is the most suitable contract in accordance with the scope of service offered by the firm; you have considered whether the customer s requirements meet the eligibility criteria for the insurance contract (e.g. claims history, etc); you have considered whether the customer requires additional features, such as a protected no claims discount and so on; the cost of the contract where this is relevant to the customer s demand and needs; A general description of any costs, fees or other charges in connection with the contract; It is permissible to recommend an insurance contract which does not meet all of the demands and needs of the customer on the provision that; 1. there is no insurance contract available to the adviser, in accordance with the scope of service offered, which meets all of the demands and needs of the customer, and; 2. you confirm to the customer the demands and needs, which are not met by the insurance contract Duty of Disclosure Customers are under a duty to disclose facts that are material to the offering of insurance contracts. The adviser must, therefore, explain to the customer his/her duty of disclosure both at commencement of the contract as well as any ongoing duty to disclose material facts during the insurance period, for example any modifications to a motor vehicle, which occur during the policy year Existing Insurance NLD - Compliance Manual - Insurance - March

10 Where a customer has an existing insurance contract which is relevant to his/her current demands and needs, it is important that the adviser obtains sufficient information relating to this existing insurance in order that a suitable recommendation is made. In the event that you are aware that the customer s existing insurance is likely to affect your recommendation, you must not make a recommendation until you are in possession of all relevant details. In the event that the customer is unable to provide information relating to a relevant existing insurance contract, you may continue to make a recommendation; however, you must convey clearly to the customer that the recommendation may be unsuitable as you have been unable to take into account full details of the customer s existing insurance Affordability As mentioned earlier in this chapter, it is vital that you ensure that any recommendation for an insurance contract takes into account the customer s demands and needs insofar as they relate to affordability Policy Summary A firm must provide a consumer with a policy summary in good time before the conclusion of a contract. This ensures that your customer can make an informed decision about the proposed arrangements. With respect to protection contracts, the provision of a policy summary is mandatory. For general insurance contracts, issuing a policy summary is optional. The policy summary must follow the prescribed FCA layout, details of which can be found here Conclusion of a Contract A contract is concluded when an offer to be bound by it has been accepted Research Guidance One of the key areas of advice is taking the customer s demands and needs and matching these with the products and providers available. One of the following sources of research data should be selected. 1. A computerised Product Database/Sourcing System, which has been updated within the last 24 Hours. 2. An up to date published product datasheet, provided it has been updated no more than one week prior to recommendation 3. Individual insurers evidence of research can be obtained Statement of Demands and Needs The purpose of the Statement of Demands and Needs is to confirm the advice given to the consumer with regard to a payment protection contract, a pure protection contract or a general insurance contract, to explain fully the reason why you believe that the advice is suitable for them, having regard to their financial, personal circumstances, demands and needs whether the recommendation is to buy, sell, convert, cancel, surrender or suspend premiums to a general insurance policy. NLD - Compliance Manual - Insurance - March

11 The Statement of Demands and Needs must; Be constructed with simplicity, clarity and with plain English; Explain technical terms to aid customer understanding; Use concise and clear messages; Be provided prior to conclusion of the contract; Confirm the scope of service which has been provided in accordance with the firm s Terms of Business/Key Facts document; Set out the customer s demands and needs; Confirm whether the firm has personally recommended the contract; Not simply re-confirm the features of the insurance contract, but explain the reasons for personally recommending the contract in the context of the customer s demands and needs; Explain the reasons for selecting a particular insurance company, for example; price, service levels, claims experience and exclusive features; Reflect the complexity of the insurance contract; Detail the amount of insurance required, Detail the customer s insurance requirements; Detail the product recommended; Confirm the method of premium payment; Level of fees charged to the customer; Confirm the customer s duty of disclosure; Be provided in a durable medium. The Statement of Demands and Needs may be provided orally if requested by the customer or where the customer requires immediate cover on the provision that the Statement is issued immediately after conclusion of the contract. Where a contract is concluded by telephone and, consequently the Statement of Demands and Needs cannot be provided prior to conclusion of the contract, the Statement can be provided orally before conclusion of the contract and be provided in writing immediately after conclusion of the contract. The Statement itself is used to demonstrate the suitability of any recommendation. Consequently, the Statement must contain sufficient information to adequately perform as this record. Statements of Demands and Needs are generally available from industry sourcing software; however, it is the firm s responsibility to ensure that the content of such software complies with FCA Rules. Details of the cancellation period, along with price information, should be included within the Statement of Demands and Needs Price Disclosure If a policy is bought by a consumer in connection with other goods or services you must, before conclusion of the contract, disclose the premium separately from any other process and whether buying the policy is compulsory. Where a discussion takes place during the sale of a protection product that covers any of the main characteristics, ie significant benefits, exclusions, price and duration, you will be required to provide information orally as well as in writing; The total cost The fact that interest is payable on the premium; and Regular payments of the insurance 1.25 Cancellation Period NLD - Compliance Manual - Insurance - March

12 In respect of Payment Protection and Pure Protection (term, income protection and critical illness insurance) contracts, you must draw the consumer s attention to the importance of reading the documentation in relation to the policy before the end of the 30 days cancellation period to check that the policy is suitable for them. For general insurance contracts the cancellation period is 14 days Policy Documents and Cover Notes Policy documents and cover notes in relation to general insurance business should be checked for accuracy prior to issue to the customer and should be issued as soon as reasonably practicable The required contents of a General Insurance file Each complete file should contain the following items; Copy of signed Client Agreement and Key Facts Letter; Fact Find/Quotation Gathering Form; Evidence of research undertaken (depending upon level of service provided); Copy of the Policy Summary (if this has been given to the customer); Copy of Insurance Application; Statement of Demands and Needs; Copy of policy documentation; Any other appropriate correspondence, eg AML There is no detailed record-keeping requirement, or a specific length of time given in which to keep the records, however all completed files must be uploaded to New Leaf for storage on our servers. Firms should bear in mind the need to deal with requests for information from the FCA, as well as queries and complaints from customers Charging Fees In general terms, one could argue that any charge that the firm makes for arranging or advising on insurance contracts is a commercial decision and not within regulatory scope. However, the Financial Conduct Authority requires that firms must ensure that charges are not excessive in the context of; the amount it charges for the services or products in question compared with charges for similar in the market; the degree to which charges could be abuse of trust, and; the nature and extent of charges to the customer. All advisers should be clear as to the fact that charges must be disclosed to the customer. This must include the firm s charges, charges made by the insurance provider and charges levied by any credit provider in relation to premium instalment plans. If an actual amount for the fee cannot be given, the firm must give the customer the basis for calculation. The firm s Client Agreement and Key Facts document should detail the basis upon which the firm will charge for its services or refer to the source where such information may be obtained. Therefore, if a charge is proposed, then the basis of that charge must be explained and agreed with the customer and confirmed in writing before any chargeable work is carried out. Charging should not take place retrospectively. All proposed fee-charging situations must be pre-approved by Compliance. NLD - Compliance Manual - Insurance - March

13 1.29 Disclosing commission to Commercial Customers Upon request, the firm must promptly disclose, in writing, the commission payable in respect of any general insurance transaction. If the precise amount of commission payable is unknown at the time of request, an estimate must be provided in a manner that is clear, fair and not misleading. NLD - Compliance Manual - Insurance - March

14 Insurance Client Money Guidance NLD Compliance Manual March

15 Chapter 2 Client Money Guidance 1.1 FCA permission to hold client money 1.1 FCA permission to hold client money New Leaf Distribution does not hold PCA permissions to hold client money. Please refer to the Compliance Manual Chapter 8.6 for further guidance NLD Compliance Manual March

16 Insurance Sales Process Advised Sale with Face to Face Contact NLD - Compliance Manual - Insurance - March

17 An advised sale is where a personal recommendation is made on the merits of a particular Non-Investment Insurance Contract. In essence, the adviser will recommend a particular Non- Investment Insurance Contract to the customer. (With a non-advised sale, it is the customer who makes his own decision using information provided by the adviser). The process described here relates to advised sales where the contract between the customer and the adviser is predominantly face-to-face. It describes the services, where initial contact may be made by telephone, but where the rest of the sale is based on face-to-face contact. For an advised sale where initial contact with the customer is made face-to-face see table 1. For advised sales where initial contact is made by telephone see table 2. NLD - Compliance Manual - Insurance - March

18 TABLE 1 1. INITIAL DISCLOSURE DOCUMENT (IDD) What the FCA says about the Initial Disclosure Document (IDD)? The adviser may disclose details of his status by providing the customer with an Initial Disclosure Document (IDD) in durable medium at any time before the conclusion of a noninvestment insurance contract, unless the adviser provides oral disclosure as requested by the customer OR the customer requires immediate cover. General disclosure requirements are found in ICOBS 4.1.2R. This information must be sent to the customer prior to the conclusion of the contract. A contract is concluded when an offer to be bound by the non investment insurance contract has been accepted. An offer in the course of negotiations (for example, an offer by an insurer to consider an application) is not an offer to be bound, but is part of a pre-contractual negotiation. A customer will provide all the information an insurer needs to decide whether to accept a risk and to calculate the premium. The customer may do this orally, in writing or by completing a proposal form. The response by an insurer, giving a quotation to the customer specifying the premium and the terms, is likely to amount to an offer of the terms on which the insurer will insure the risk. Agreement by the customer to those terms is likely to be an acceptance that concludes the contract. In other cases where the insurer requires a signed proposal form (for example, some pure protection contracts), the proposal form may amount to an offer by the customer on which the insurer decides whether to insure the risk and in such cases the insurers response is likely to be the acceptance. Where the parties to a contract agree that insurance cover should commence before all the terms and conditions have been agreed, the customer should be provided with information required by rules in ICOBS to be provided before conclusion of the contract to the extent that agreement has been reached. Important Note: All advisers should send the customer an Initial Disclosure Document or equivalent within 5 business days of the initial telephone call or at the initial meeting, whichever is earlier. When must the IDD be given if aiming to give advice? All advisers must present the relevant Disclosure Document on initial contact. An adviser must ensure that on first making contact with a customer, they establish with the customer: that the adviser will provide advice how the firm will be remunerated Typically this will be achieved by providing an IDD. The IDD is a prescribed document and must be issued in the format prescribed by FCA and the Firm. The firm s Standard IDD should be issued. Firms may change the wording in places, eg in relation to fees, but the changes that can be made are limited and must be undertaken in accordance with the FCA Rules, and must be approved by Compliance. NLD - Compliance Manual - Insurance - March

19 The IDD will be provided in a durable medium i.e. paper An IDD does not need to be provided where one has already been provided and remains accurate and appropriate for the customer. If a customer has been provided with a relevant IDD but the adviser subsequently discovers that the customer requires different services from those originally described, a revised IDD must be provided by the adviser. 2. ADVISING FROM A LIMITED PANELS OF INSURERS What the FCA says about advising from a Limited Panel For advisers advising on a restricted number of insurers, a list of the insurers it selects from will be provided to the customer if the customer requests it. ICOBS 4.1.6R (2). Important Note: The IDD prompts the customer to ask for the list. How should this be applied to the sales process? If the scope of service is based on a limited number of insurers, the firm must maintain and keep up to date in a durable medium and in a form in which it can be distributed to customers, a list of insurers that it selects from, across the relevant insurance types. The Firm s IDD should clearly explain the status of these contracts, and all advisers must use this document to clearly explain the different levels of service available. 3. CLIENT AGREEMENT LETTERS In order to comply fully with the additional requirements of the Financial Promotion regulations and Data Protection Act, it is recommended that the customer is provided with the firm s relevant client agreement. In all cases advisers should retain this on the customer file. 4. KNOW YOUR CUSTOMER What the FCA says about Know your Customer information? Adviser obtains sufficient know your customer information The relevant customer information must be recorded. If the adviser is aware that a customer s existing insurance cover is likely to significantly affect the suitability of any recommendation which may be made, then the Adviser should not make a recommendation until details of the insurance cover are made available OR the adviser should make it clear to the customer that the recommendation made may not be suitable because the Adviser has not taken into account full details of the customer s existing cover. NLD - Compliance Manual - Insurance - March

20 How should this be applied to the sales process? The know your customer requirements rules apply to all advised sales clarifies The know your customer information should include: Customer s needs and circumstances income, expenditure and any other resources any likely changes to the customer s income, expenditure or resources details of relevant existing insurance In all cases the adviser should, at the initial meeting with the customer: explain the purpose of completing the Fact Find gain the customer s agreement to complete the Fact Find complete the Fact Find providing additional notes where necessary within the relevant sections. All relevant know your customer information will be recorded in the Fact Find any information which the customer does not wish to disclose will be recorded as Not Disclosed. The adviser will warn the customer if this is likely to affect the advice given any information sought within the Fact Find which is not relevant to the customer situation, will be recorded as Not Applicable any areas of advice declined by the customer will be recorded as Customer Does Not Wish to Discuss Obtain the customer s signature(s) on the Fact Find, if applicable. 5. ASSESSMENT OF SUITABILITY What the FCA says about assessment of suitability? Adviser undertakes suitability assessment. ICOBS 5.3.1R The adviser must recommend a suitable contract within the scope of service provided to the customer. ICOBS 5.3.3R How should this be applied to the sales process? When assessing suitability all advisers must take into account, at least the following matters: whether the level of cover is sufficient for the risks that the customer wishes to insure the cost of the contract, where relevant the relevance of exclusions, excesses, limitations or conditions in the contract. Advisers need not consider alternatives to Non-Investment Insurance Contracts and the needs of the customer that are not relevant to the type of contract in which the customer is interested. The FCA presumption is that the least expensive contract will be the most suitable, taking into account pricing elements identified by the customer as being most important to him. Where a more expensive contract is recommended, the adviser must justify why the recommendation was made. In these cases, the Adviser should note why this is the case by: making an appropriate file note providing the customer with a direct, and like for like, comparison of the least expensive NLD - Compliance Manual - Insurance - March

21 and selected contracts The adviser may make a recommendation in respect of a Non-Investment Insurance Contract which does not meet all of the customer s demands and needs, provided that there is no Non- Investment Insurance Contract within the Scope that meets all of the customer s demands and needs AND that the adviser identifies to the customer at the point of recommendation, that the demands and needs are not met by the contract recommended. This fact should be highlighted within the Suitability Letter/ Statement of Demands & Needs. 6. RESEARCH There is no reference in the FCA rules to research. However, adequate research should be undertaken and recorded on file in order to justify the decision made. 7. SUITABILITY LETTER/NEEDS AND DEMAND STATEMENT What the FCA says about Suitability Letters/Needs and demands statements? FCA states that a Needs and Demands statement must be issued prior to a policy being concluded. ICOBS 5.2.2R How should this be applied to the sales process? Important Note: For the purposes of consistency these procedures refer to the Statement of Demands and Needs as a Suitability Letter. The suitability letter must be issued in a durable medium to the customer prior to the conclusion of the contract. The information can be provided orally if: the customer requests it; OR immediate cover is required. In such situations, however, the suitability letter will be issued in a durable medium immediately after the conclusion of the contract. The suitability letter will provide a statement that: sets out the customer s demands and needs confirms the adviser has personally recommended that contract explains the reasons for personally recommending that contract FCA has not produced a pro forma demands and needs statement but have issued guidance on its composition where a personal recommendation is made. Broadly, a statement should explain: explain simply and clearly why the recommendation is suitable having regard to the customer s demands and needs; be in simple, plain English with technical terms explained where appropriate use concise clear messages link back to the customer s demands and needs explain why a particular insurer has been recommended (where a firm is not linked to one specific insurer) NLD - Compliance Manual - Insurance - March

22 8. PRODUCT DISCLOSURE/ILLUSTRATION What the FCA says about Product Disclosure? Under the FCA rules, the insurer is responsible for the content and production of the product information. The intermediary is responsible for providing that information to the Customer. (ICOBS 6.1.1R) The timing of when the information needs to be provided changes depending on whether the contract is a distance contract or not. Insurers may provide key features instead of a policy summary. How should this be applied to the sales process? It is clear now that insurers are producing the following information for issue to customers as part of their product literature or key features documents. Nonetheless, the main information requirements and timings are set out below. All information should be provided in a durable medium. Policy Summary The policy summary is a generic document but can be personalised. FCA has restricted the information that can be included in a policy summary, so that the important information stands out. However, it is possible to include the policy summary as part of another document providing it is a prominent and distinct section. The main information that should be included is, inter alia: name of insurance undertaking type of insurance and cover significant features and benefits significant and unusual exclusions cross references to exclusions in the policy document contact details for notification of claims; and key facts logo The Policy Summary should be provided in good time before conclusion of contract. ICOBS 6.4.4R Price Information It should include, inter alia: total amount of the premium. (Where the policy is sold with other goods and services, the premium will be shown separately from all other prices) additional fees, charges, and taxes payable, including any interest charged; and the total price to be paid for the insurance contract The price information should be provided in good time before conclusion of contract. ICOBS 6.4.6R Directive required information The directive required information does not need to be in a separate document. It will likely be incorporated in another document e.g. policy document NLD - Compliance Manual - Insurance - March

23 The directive required information will be provided in good time before conclusion of contract. Claims handling process information The information that will be provided is: 1. address, telephone number or other point of initial contact for notifying a claim; and 2. information the customer will provide to the insurer when making a claim The information will be provided in the same document but can be incorporated into another document or provided as a stand-alone document. The claims handling information will be provided on conclusion of contract. Information about cancellation The information that will be provided is: 1) existence or absence of a right to cancel 2) where a right to cancel exists a. duration of the cancellation period b. conditions for exercising the right to cancel c. consequences of not exercising the right to cancel; and d. how the right to cancel may be exercised, including the address to which the notification of cancellation should be sent The information should be sufficient clear, prominent and information to enable the customer to understand the right to cancel. Where the notice of the right to cancel forms part of another document, or is one of a number of documents provided to the customer at the same time, the firm should ensure that the presence of the notice of the right to cancel is drawn to the customer s attention. The cancellation information will be provided on conclusion of contract. Compensation scheme For any applicable compensation scheme mentioned in the policy summary, the extent and level of cover and how further information can be obtained, if not already provided in the policy summary. The compensation scheme information will be provided on conclusion of contract. Policy document The policy document will contain all the contractual terms and conditions. The policy document will be provided on conclusion of contract. NLD - Compliance Manual - Insurance - March

24 9. SENDING THE APPLICATION TO THE INSURER In all cases, advisers must offer the customer the opportunity to complete the application. If the customer requests the adviser to do so and advice is being given on a face to face basis, then he may undertake this on the customer s behalf, provided that the customer verifies the accuracy of the details provided by signing the application when it has been fully completed. Under no circumstances should the customer sign an application that is blank or partially completed. Once completed and signed, the adviser will promptly submit the application to the appropriate Provider. 10. POLICY DOCUMENT The insurer issues the policy document to the customer. Whilst the FCA rules in this regard apply to insurers, advisers will be expected to verify the accuracy of the copy policy document by comparing this to the original application (and any subsequent changes). Any discrepancies should be brought to the attention of the customer and insurer immediately, initially by telephone and then in writing. NLD - Compliance Manual - Insurance - March

25 TABLE 2 1. TELEPHONE CALL What the FCA says about the Initial Telephone call? If initial contact is made between the customer and adviser by telephone, the following information must be given by the Adviser before proceeding further: The name of the adviser and (if the call is initiated by the Firm) the commercial purpose of the call. How should this be applied to the sales process? On initial contact means when the adviser intends to provide advice or personalised information. It does not mean when a customer makes an appointment, although the IDD could be provided at that point if the adviser wished. Note: To avoid ambiguities with customers, advisers are recommended to highlight that any advice will be based on the Firm s relevant scope of service whether this is a fair analysis of the whole of the market, a restricted choice of providers or a single provider only. 2. INITIAL DISCLOSURE DOCUMENT (IDD) What the FCA says about the Initial Disclosure Document (IDD) The adviser may disclose details of his status by providing the Customer with an Initial Disclosure Document (IDD) in durable medium at any time before the conclusion of a noninvestment insurance contract, unless the Adviser provides oral disclosure as requested by the customer OR the customer requires immediate cover. The IDD or equivalent must be sent to the customer prior to the conclusion of the contract. A contract is concluded when an offer to be bound by the non-investment insurance contract has been accepted. An offer in the course of negotiations (for example, an offer by an insurer to consider an application) is not an offer to be bound, but is part of a pre-contractual negotiation. A customer will provide all the information an insurer needs to decide whether to accept a risk and to calculate the premium. The customer may do this orally, in writing or by completing a proposal form. The response by an insurer, giving a quotation to the customer specifying the premium and the terms, is likely to amount to an offer of the terms on which the insurer will insure the risk. Agreement by the customer to those terms is likely to be an acceptance that concludes the contract. In other cases where the insurer requires a signed proposal form (for example, some pure protection contracts), the proposal form may amount to an offer by the customer on which the insurer decides whether to insure the risk and in such cases the insurers response is likely to be the acceptance. NLD - Compliance Manual - Insurance - March

26 Where the parties to a contract agree that insurance cover should commence before all the terms and conditions have been agreed, the customer should be provided with information required by rules in ICOBS to be provided before conclusion of the contract to the extent that agreement has been reached. Important Note: All advisers should send the customer an Initial Disclosure Document or equivalent within 5 business days of the initial telephone call or at the initial meeting, whichever is earlier. How should this be applied to the sales process? All advisers must present the relevant Disclosure Document on initial contact. An adviser must ensure that on first making contact with a customer, they establish with the customer: that the adviser will provide advice how the firm will be remunerated Typically this will be achieved by completing the relevant section of the IDD. The IDD is a prescribed document and must be issued in the format prescribed by FCA and the Firm. The firm s Standard IDD should be issued. Firms may change the wording in places, eg in relation to fees, but the changes that can be made are limited and must be undertaken in accordance with the FCA Rules, and must be approved by Compliance. The IDD will be provided in a durable medium i.e., paper. In all cases, advisers should obtain a signed copy of the relevant IDD from the customer and retain this on the customer File. An IDD does not need to be provided where one has already been provided and remains accurate and appropriate for the customer. If a customer has been provided with a relevant IDD but the adviser subsequently discovers that the customer requires different services from those originally described, a revised IDD must be provided by the adviser. NLD - Compliance Manual - Insurance - March