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EDRs: Here's how to protect yourself from churn claims

Advisers must keep good records of their interactions with clients to protect themselves against allegations of churning business, dispute resolution services say.

Thursday, July 27th 2017, 8:56PM

by Susan Edmunds

FSCL this week reported that the number of complaints about financial advisers had increased significantly year-on-year, off a low base.

About 10 of the cases FSCL had dealt with over the year had related to replacement business, chief executive Susan Taylor said.

She said, when advisers recommended that insurance policies be replaced, they needed to clearly explain to their clients the reason for the change, whether they were suggesting a change to a new insurer or just a new type of product.

“They need to clearly explain the differences between the types of products and give clear reasons comparing the old with new.”

She recommended as much as possible should be put in writing so it was clear in future what had been discussed.

Taylor said advisers should also make clear to their clients their disclosure obligations. “We sometimes see clients who clearly haven’t understood the importance of disclosure.”

If there were any premium loadings or exclusions applied, they should be explained, she said, and a policy should not be cancelled until the new one was operating.

“Losing cover for pre-existing conditions causes the biggest problems,” Taylor said. “Often the clients hasn’t understood the proposal.”

Insurance and Financial Services Ombudsman Karen Stevens said churn was a major concern for the insurance advice industry.

“It simply means that consumers are being shifted from one policy to another for the financial gain of the adviser. No one would actively encourage such behaviour when it's not in the interests of the customer,” she said.  

“The complaints we see usually relate to non-disclosure; where an insured's health has changed and they fail to inform the new insurer.  A claim that might have been paid under the original policy won't be paid under the new policy if it hasn't been disclosed at commencement of the risk. The IFSO Scheme has heard consumers say, so many times, that if they only knew the risks, they wouldn't have changed policies.

“Changing policies is fine for the right reasons if it's in the customers' best interests and as long as the customer has fully disclosed.”

Tags: Churn

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