Posted: 14th June 2013

It has been over a century since Parliament legislated on this aspect of insurance. Quietly on 6 April 2013, the Consumer Insurance Act 2012 came into force, consolidating insurance industry initiatives and removing consumers’ duty to disclose facts that an insurance underwriter would consider material. Consumers’ duty is to take “reasonable care not to make a misrepresentation”. All important questions asked of consumers by firms’ employees at point of sale must, therefore, be clear and specific.

The regulator has promised to be proportionate in the balance between customer and firm responsibility. Sourcebook by sourcebook, however, the regulator – and now Parliament – has decided that the consumer needs more protection. The act covers any insurance policy for personal use including home, car, pet, travel, life, critical illness, income protection, health insurance and pension annuities. It applies regardless of how it is purchased: online, telephone and face to face.

The impact on firms is that consumers no longer have to volunteer information; if firms need to know, they need to ask. Applied correctly, the new rules provide greater protection for all: consumers and firms. The result, however, will be that the sales process will increase in length and depth. Whilst this may seem a mere process change, it should raise questions: are your employees up to the challenge? Do your employees have the soft skills to create an excellent customer experience whilst ensuring good customer outcomes? How do you measure the impact of this change on outcomes for customers?

This consolidation of industry initiatives is an opportunity for firms to review their distribution channels: financial promotions, point of sale documentation, websites and call scripts. Clarity must prevail in the sales process regarding questions and information required for customer acceptance. Reference to customers’ “disclosure of material facts” must also be removed from T&Cs and financial promotions. What remains is a clear obligation on consumers to take reasonable care to provide accurate and complete information in response to the questions they do ask. Firms should consider this integral to their treating customers fairly strategy, coupled with assurance and oversight.

Firms that understand the challenge and the resulting opportunity should use this to differentiate themselves from the competition and enhance their overall customer experience compared to their peers.

How will you know whether your new insurance sales process is creating good customer outcomes? Those outcomes must be effectively tested, measured and monitored. Outputs from risk based outcomes testing should form a key component of a firm’s customer treatment MI, providing hard factual evidence about the quality of outcomes the firm is achieving for customers through this, and every, legislative or regulatory change.