Policy documents must improve

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Russell Hutchison reckons there is a problem matching up the written advice advisers give clients and the policy documents issued by life companies.

Monday, June 11th 2012, 6:00AM 1 Comment

by Russell Hutchinson

Consider a review of a statement of advice - the insurance adviser has a big stack of SOAs pre-printed in the corner of his office.

When he meets a client he does a gloriously detailed fact-find, and a fabulously good job of figuring out what cover the client requires and how much.

But because he hates writing reports and hasn't bought a decent computer system he just writes a brief letter listing the cover names and the amounts and staples it to the front of one of his pre-printed statements of advice, which has all the possible covers listed, and refers the client to the letter to find out which he has actually recommended.

Madness.

If submitted as an example of a recommendation in a decent education programme I think it might well have failed. Examiner, and, come to think of it, an inspector from the FMA might justifiably say "but clients will find this confusing!".

They would be right.

That's why no adviser I have met ever does statements of advice this way.

But I'm confused, because this approach is quite common amongst insurers. They collect a very detailed application form, conduct an excellent underwriting process, and then stick a schedule in a policy document that frequently lists many covers that the client doesn't have.

Do you wonder that some clients are confused?

In an age of mass customisation standard policy wordings must be a thing of the past. Sure, have a standard life wording, and a standard income protection wording, and a standard trauma wording. But please, please, stop the practice of including the income protection wording in the policy document when the client only has life insurance.

Martin Werth from the UK's Living Benefits business puts it very well in his recent article:

"We sell long-term ... products and, in time, people forget they have protection and what it is for. Invariably, they overestimate the cover and its scope. We need to provide regular clear information on the scope, including what is not covered..."

It's that danger of overestimating the cover, coupled with confusing policy documents, which really concerns me. Advisers that take pride in recent enhancements to their statement of advice should be concerned too.

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