What’s the choice?

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Given that life advisers are now required to play both sides of the client relationship, which side prevails?

Wednesday, February 22nd 2023, 6:38AM 3 Comments

by Jon-Paul Hale

Or do they both equally prevail, and we end up in the firing line regardless?

What am I waxing lyrical about now?

The requirement under section 10 that we, as agents of the insurer, have to pass on what we know as what we know is deemed to be known by the insurer; at the same time, we are also by law required to hold client interests paramount.

This is straightforward to navigate in the usual scheme of things; we know we pass on, and we advise the client accordingly.

But what about that wonderful grey area between disclosure and policy issue?

Here’s a scenario: your client has applied for cover and given excellent disclosure; the cover should be issued on standard terms and without issues. Just as you get the notice that the policy has been accepted standard rates and is being passed to admin to process the policy issue, and you advise your client, and they disclose something material has just happened, what do you do?

Now the obvious answer here is you pass on the information to the insurer; they stop issuing the policy, underwrite the new information and then go from there; terms, maybe, delays definitely.

But what if this issue disclosed is more delay than it is issue and change of terms? Then what?

This is where the client’s best interest issue comes into focus.

Given the scenario that the issues raised result in no changed terms, just a delay in offering cover, maybe a few months at most. And keep it simple; this is life cover.

We know that most situations at this point have little to no impact on life cover terms.

We are now faced with three considerations:
1. We tell the insurer they halt the issue of the policy, and we wait.
2. We don’t tell the insurer, the policy is issued, and we deal with the disclosure later and tidy things up.
3. We advise the client and leave the disclosure up to them to advise further.

The issue with the first approach is that we put the client in the position of not having the cover in place; as faulty as the disclosure might be, they have exposure to other things unrelated to the issue that was raised.

The issue with the second approach is that the client runs the risk of a claim being declined for other problems in the tidy-up period, and definitely has no coverage for the issue identified. At the same time, a policy in place is cover which can be argued, whereas a policy not issued is no cover at all.

The third approach is the put the client first approach. Part of the requirements on us, after the policy is issued, any information we are advised is subject to advising the clients of the issues and risks with no obligation to inform the insurer.

However, in this scenario, we are in the period between disclosure and policy issue, so we have professional risk.

So it becomes tenuous as to how we should proceed. We have to advise the client of the issues and actions needed. The question that follows is when do we inform the insurer?

If we put the client on notice, we fulfil the FSLAA obligations of advising the client of the issues. At the same time, if we also advise the insurer at the same time we leave the client without cover, that potentially would respond to other issues that come up between policy issue and sorting the new disclosure aspects.

It’s tenuous, as the insurer has a valid claim if there is a claim from the client in this “delay” period for processing the new information. At the same time, the client is likely to have a claim paid if the issue resulting in the claim isn’t related to the disclosure issue. On the basis that the issue would not result in a long-term no-cover situation.

And clearly, we’re talking about an issue that is a few weeks to a few months, not 1-2 years.

The correct answer from an adviser’s process liability perspective is to tell both the insurer and the client.
The correct answer from the client’s view is to let the policy issue and then tackle the disclosure, time is on their side, and the issue is unlikely to result in a void from inception response either.
The challenge as an adviser is in doing the thing from a process liability perspective; we open ourselves up to a client liability issue if, in the unlikely event, we have a claimable event from the client and they have no cover in place.

This is the dilemma we must consider in navigating being the meat in the sandwich of the advice and disclosure process.

This time last year, I had a client find themselves in a position of having a serious issue come up right as terms were being offered; in that case, the problem was irrecoverable, so the above doesn’t apply, but it did raise the questions on how this sort of issue needs to be managed.

What are your thoughts on this?

Tags: Jon-Paul Hale

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