Universal life policies – Who’s to bless and who’s to blame?

The problems concerning these policies, as recently highlighted by the LT Ombud, concern at least the last five of the six “Treating Customers Fairly” (TCF) buttons:

Products & services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly
Customers are provided with clear information and kept appropriately informed before, during and after point of sale
Where advice is given, it is suitable and takes account of customer circumstance
Products perform as firms have led customers to expect, and service is of an acceptable standard and as they have been led to expect
Customers do not face unreasonable post-sale barriers imposed by firms to change product, switch providers, submit a claim or make a complaint.

Whilst the Ombud has identified external issues such as the inflation rate and adverse economic conditions, it also points a finger at the industry for not identifying these problems earlier and communicating it more clearly.

In the past we have seen, too often, that the messenger got shot, rather than the sender thereof.

Finding scapegoats will not resolve the matter. An urgent solution to address client concerns is needed. The call by the Ombud for industry intervention is spot-on.

It would be grossly unfair to expect advisers to now go and explain why the actuaries got it wrong, or the insurers neglected to take timeous action when the trend first became noticeable.

In the pre-FAIS era, advisers were subjected to the mushroom principle. They were often only given enough information to effect the sale. In the case of universal life policies, they even had a range of options whereby they could manipulate the guarantee term to suit the client’s wallet. Never mind the quality, feel the width.

TCF is not measured by ticking the right boxes. The first outcome reads: “Customers can be confident they are dealing with firms where TCF is central to the corporate culture.”

Seldom will there be a better opportunity to display an insurer’s commitment to TCF than the issues around underperforming universal life policies.

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