Insurance advisers must know their products

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A Dispute Resolution Scheme has highlighted the importance of product knowledge for advisers. In a complaint against an insurance adviser, FSCL has suggested that “…  a key insight for insurance advisers is to ensure you are familiar with the policies you are recommending, so you can identify exclusions that might be relevant to your client.”

Thursday, March 7th 2024, 3:54PM 1 Comment

by Steve Wright

Although this complaint related to health insurance exclusions, the need for product knowledge extends to all aspects of the products an adviser can recommend, including an understanding of ancillary matters relating to particular products, like product underwriting conditions and detail of available premium structures.

For now though, let’s concentrate on health insurance general exclusions (those exclusions written into policy wordings that apply to all policyholders) because they matter and because they differ from product to product.

Understanding what health conditions and which medical treatments may not be covered by health insurance policies is a tricky area to navigate.

Some treatments and conditions may be clearly excluded by the general exclusions, while others may not be covered because there is no benefit under which a claim can be made. Some conditions or treatments may effectively be excluded simply because the claim benefit monetary limit is way too low to give effective protection.

Even where different policies have common exclusions in name, there can be important differences as to what is actually excluded.

A general exclusion may look the same across competing policies at first glance but be very different in practice, due to wording or term definition differences. 

A good example is congenital conditions (conditions present at birth) a condition commonly excluded. However, some policies significantly limit the exclusion by, for example, defining ‘congenital condition’ to mean a condition present at birth and identified within a specific time, for example, four months after birth. 

In such a case, a congenital condition identified more than four months after birth would not be excluded simply due to the general exclusion.

It may be wise for advisers to assume every client wanting health insurance would expect their pre-existing conditions to be covered, making coverage of their condition of ‘primary importance’: something advisers must specifically advise on.

This has practical implications for advisers, for example:

• The need to consider various products’ benefits and exclusions, having specific regard to the client’s pre-existing conditions, so that the most appropriate product can be recommended.
• If the client’s condition will likely be excluded (or possibly excluded after underwriting) this must be made clear to the client.
• If the policy with the most favourable treatment of their condition (lack of exclusion) is less generous for other reasons (less generous benefits or options) various trade-offs may be necessary.  These trade-offs and their implications must be explained to, and discussed with the client, so that they can make an informed decision on which trade-offs to accept and which product to take. (Remembering that the lack of a general exclusion doesn’t guarantee a treatment will be covered by the policy or that the client’s condition won’t be excluded in special terms issued after underwriting!)
• Evidence of good advice is critical too, so clear and unambiguous notes and record keeping is vital, as is a comprehensive Statement of Advice, suitably explaining advice given, justifying recommendations, and recording decisions made.

While a lot of attention has been given to the benefits provided by competing health policies, general exclusions, historically anyway, have been given much less attention, perhaps because they are so difficult to compare.

I think this needs to change: General exclusions are just as important as benefits and it seems clear now that advisers are expected to have an acceptable level of knowledge of all aspects of the products they are able to recommend, including the exclusions.

The good news is that great product knowledge is good for advisers and business.

Steve Wright has qualifications in economics, law, tax, and financial planning. He has spent the last 20 years in sales, product, and professional development roles with insurers. He is now independent and helping advisers mitigate advice risk through training and advice coaching.

Tags: insurance

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