What clients circumstance are relevant to replacement advice?
Just a few weeks ago ASIC highlighted the failure to collect enough information about the client's circumstances as a failure when giving advice on replacing insurance. (you can find my report on that and all the links you need here). So what kinds of things might be required in order to give good replacement advice.
Start with all the things you would normally need to give good insurance advice. Great, now we have those. What specific additional pieces of information should we pay particular attention to for replacement advice?
To work that out, consider the possible consumer harm that could be done by giving poor replacement advice:
- The consumer could lose cover before gaining replacement cover
- The terms of replacement cover could be worse than existing cover
- The cost of replacement cover, both now and in the future could be worse than existing cover
- The client might lose cover entirely
- The client might lose a non-cover benefit - like a cash value, if their existing cover has a premium payback feature, or if it is a with-profits contract
It is therefore going to be important to collect from the client:
What existing cover they have, with which company, an preferably to obtain a copy of the policy document. Policy documents being data frozen at the point of issue this will ideally be refreshed by a recent renewal statement from the insurer so current premium and cover values are known.
What the client's state of health is now, and some estimate of whether that is materially different (better or worse) than it was when the original cover was taken out. Although advisers do not have to be underwriters, picking up at least enough information to make an informed assessment of the likely success of making a change appears to be vital.
That's probably not all the information required to five good advice on replacement, but noting ASIC's point, that is what needs to be collected from the client. Also remember: that is in addition to a good basic fact-find.
Advice could be enhanced by checking the projected premium for the current cover and a research evaluation comparing the current cover with proposed new cover. In addition to that a good process is required - assuming existing cover is being included in the scope of advice (and it does not have to be) it is vital to stress that existing cover should not be cancelled until new cover is in place, to provide a clear statement of both advantages and disadvantages of any proposed replacement, and to examine cost and affordability issues, and to advise the client of the process of application.