How a product is positioned is an incredibly important part of selling insurance and this can vary depending on which method of sale is required by the customer. Despite this, the fundamentals remain:

  • Has the customer received a product which meets their demands and needs?
  • Have they been provided an appropriate level of information in order to help them make that decision?
  • How can you be assured that the customer has received fair value?

Appropriate information to make an informed decision

In order for customers to make informed decisions, they need to be provided with an appropriate level of information. The level of information required will vary according to matters such as:

  • The knowledge of a typical customer (‘target market’) for the policy;
  • The policy’s main benefits, exclusions, limitations and conditions;
  • The complexity of the policy; and
  • Whether the same information has been provided previously and, if so, when.

As this needs to be provided to allow the customer to make an informed choice, it should be done before the conclusion of the contract/policy is purchased.

This means providing the appropriate information in a manner, so the customer understands their product before they buy it. For example, where the sale is completed online, providing the appropriate information at a reasonable stage of the online journey and prominent enough to draw attention to it.

This information is usually produced by the insurer and therefore you should arrange for that to be provided to you.

Ensuring fair value

Fair value in distribution ensures customers don’t pay too much for their cover by requiring firms to understand the costs associated with the distribution of the policy. It also ensures that the breadth and quality of service is comparable to the price. This means that the risk price for the customer should bear relevance to the final price they pay.

AXA Commercial has engaged with our intermediaries to understand the services they provide to customers and set remuneration/commission levels which reflect that service. There remains an obligation for distributors to provide information to insurers which will assist them in undertaking their fair value assessment.

So what about advised sales?

When a firm sells insurance on an advised basis, there are additional rules that need to be followed, these are:

  • If you inform the customer you give advice on the basis of fair analysis of the market, you must have undertaken analysis of a sufficiently large number of contracts of insurance available.
  • Likewise, if you inform a customer you offer a personal recommendation on the basis of fair and personal analysis, that must be on the basis of analysis of a sufficiently large number of contracts.
  • Where you provide a personal recommendation, you must provide a personalised explanation, in addition to a statement of demands and needs, which explains why the contract of insurance you’re recommending best meets the customer’s demands and needs.
  • That personalised explanation and statement of demands and needs to be provided to the customer by their preferred communication method.

As there is a greater risk of customer harm arising from advised sales, firms that want to sell on an advised basis require additional permissions from the FCA. If you do not have these permissions, you cannot offer advice on the products you sell.

Firms making non-advised sales should avoid answering questions in a way that could inadvertently give advice. Answering questions such as 'what do you think?', or 'which one is best?' could involve making a personal recommendation and therefore become an advised sale.

Questions to ask

  • Does the policy we are offering to the customer meet their demands and needs? Will they have the policy coverage they need? Will they be able to use most of the policy benefits?
  • Have we sold the policy with onerous exclusions which greatly reduce the chance of the customer receiving benefit in the event of a loss?
  • Does the appropriate information remain relevant following benefit changes?