Steven W writes:
It seems that direct marketers of insurance, and those who actually meet with the public, have dissimilar disclosure requirements, with the direct marketers having considerably less of an obligation than brokers do. Is the public, then, adequately served by direct marketers? In addition, are companies which provide comparative insurance and assurance quotes for cover with an emphasis only on initial price and not long term cost and little, if any, focus on benefit comparisons doing a further disservice to the general public?
This remains an enigma.
There are a number of provisions that direct marketers are required to adhere to:
Section 15(2)(a) of the General Code of Conduct, for instance, stipulates:
When providing a client with advice in respect of a product, a direct marketer must at the earliest reasonable opportunity:
(a) make enquiries to establish whether the financial product or products concerned will be appropriate, regard being had to the client’s risk profile and financial needs, and circumstances;
It is difficult to fathom how an industry, renowned for high staff turnover, can train staff to conduct this kind of analysis in the same detailed manner required of a non-direct intermediary.
Section 15(2)(c) requires that the direct marketer should:
…take reasonable steps to establish whether the financial product identified is wholly or partially a replacement for an existing financial product of the client, and, if it is such a replacement, inform the client of actual and potential financial implications, costs and consequence set out in clause 8(1)(d) of this Code before any transaction is concluded.
Does a call centre agent, with all due respect, have the knowledge and experience to be able to do this at the same level as an experienced field advisor, who is obliged to understand competitor products in order to market his own effectively?
A direct marketer is required to provide “…concise details of any special terms and conditions, exclusions, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided;
This is possibly an easy one, as a script containing the required data is drawn up before and simply read to the client, but how far does “concise” go? A further question that arises, is how much the client understands of what he hears, given the complexity of industry terminology?
We discussed material disclosures pertaining to non-direct clients in an article titled Disclosure Obligations on Monday, and specifically highlighted the following:
In terms of the common law there is no general duty on a broker to explain every clause of the policy to the insured. However, there is a legal duty, not only to inform the insured of the existence of any onerous policy conditions, but also to explain the importance of such conditions to the client.
This same methodology should also be applied where “Aggregators” are involved. There appears to be some difficulty in determining whether companies who offer to obtain various quotes on the client’s behalf should be licensed or not.
Three years ago, I referred an enquiry from a reader to the Regulator concerning a company which offered to obtain 12 quotes for the client from “South Africa’s top insurance companies”. It turned out, on closer investigation, that most of these were closely related. The aggregator undertook to compare the quotes, and select the best three on price. None of the obligations mentioned above applied to them, as they structured their business in such a way that they were not required to be licensed under FAIS.
My own view, which appears to be incorrect, is that an action, which leads to the sale of a product, should at least be considered an intermediary service.
Evaluating Market Conduct
There may not be fifty shades of grey when it comes to products and providers in the industry, but there certainly are enough variables to warrant a horses-for-courses approach in regulating the various players.
In the UK, the authorities use a “mystery shopper” approach as part of TCF to test the practical implementation of legal requirements by product providers.
This may indeed be the best way of testing whether clients are treated fairly, or whether the interaction is merely conducted in a manner which pays lip service to what the law requires.