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The laws that will change how you sell protection

by: Kevin Paterson
  • 24/10/2011
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The laws that will change how you sell protection
Kevin Paterson, sales and marketing director of Assurant Intermediary, explains how the EU Gender Directive and the Consumer Insurance Bill are set to alter how advisers and providers sell insurance for good.

Two significant changes to legislation are being introduced that will have wide-reaching effects on the insurance industry and the way in which brokers sell insurance.

Firstly, the European Court of Justice has banned the use of gender in insurance policies, sending a shockwave through the insurance industry.

The judgement, effective December 2012, means that insurers will be legally prevented from taking a person’s gender into account when pricing insurance.

It will have a profound effect on products that take account of the risk differences between men and women.

The insurance industry has been fighting against this decision throughout the last decade.

The Association of British Insurance (ABI) has expressed disappointment, stating that the judgement ignores the fact that, when relevant to the risk, taking a person’s gender into account enables men and women alike to get a more accurate pricing for their insurance.

Research carried out by the ABI last year revealed the impact of removing gender from risk assessment.

It estimated that young women under the age of 25 could see an average rise of 25% to their premium. Women could see an increase of as much as 20% in the cost of life insurance, while men could see a reduction of 10%.

And the impact doesn’t stop there.

Over the next 20 months, insurers will have to make large-scale changes, including amending policy documentation, contacting customers with new information, updating sales and marketing material, updating and changing IT systems, ensuring brokers have the right pricing information …

The list goes on and it will ultimately be the consumer who pays the price.

The ruling also sparked widespread concerns that a ban on age discrimination could follow, which could have a far greater impact on consumers and the insurance industry than the gender ruling.

Another proposed change in legislation is set to be the first shake-up of one of the main principles of insurance since 1906.

Ubberimae Fides is the concept of utmost good faith.

This principle requires that all parties engaged in the negotiation regarding the establishment of an insurance contract must disclose all relevant information – material facts in other words – to all the other parties.

Instead of parties only having to give information that they are directly asked about, there is a positive duty of disclosure where the parties must volunteer the information even if not asked.

Put simply, an insurance company relies on the utmost good faith of the consumer to disclose all information available regarding what is to be insured whether it is a car, a home or a mortgage.

Not disclosing all the facts or misrepresenting information gives the insurance company the right to cancel the contract.

Now it looks like the playing field is about to be levelled.

The Consumer Insurance (Disclosure and Representations) Bill will change the relationship between consumers and insurance providers.

The proposed reforms will mean that the responsibility to provide all relevant information regarding a risk will shift from the consumer to the insurer.

If passed into law, the onus will be on insurers to obtain specific information about a customer by asking relevant or specific questions. The changes will mean that insurers will no longer be able to decline claims merely because of accidentally inaccurate or misleading statements made by consumers.

The changes have, in my view, positive implications for payment protection insurance (PPI) – namely the end of underwriting at point of claim, which still prevails amongst the majority of PPI propositions currently available in the marketplace.

If passed into law, the Bill will lead to a need to capture full risk data about customers at the point of sale, bringing an end to the traditional approach to underwriting PPI insurance, and not a moment too soon if you ask me.

Underwriting at point of sale establishes eligibility and suitability upfront and removes the ambiguity that hovered around the historical point of claim approach.

The British Insurance Brokers’ Association is seeking clarity as to the brokers’ responsibility when collecting pre-contract information as the insurer’s agent.

It has written to the government to make the point that brokers are the principal agent of the customer – particularly as they are collecting information to search the whole market and not for a specifically named insurer.

While there is a way to go yet, I believe this Bill should represent a positive step forward for the insurance industry as a whole, particularly in the payment protection insurance market as it starts to rebuild trust and confidence amongst consumers.

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