Blog: Insurance - more important than Fruit Pastilles


What happens when you examine the insurance industry like you would a packet of Fruit Pastilles?

Selling insurance has become as dubious as selling sweets to children. Instead of giving proper advice, brokers are, at worst, mis-selling and, at best, under-selling, and as cover is commoditised in this race to the bottom, customers are unable to buy the insurance they actually need.
I bought six tubes of Rowntree Fruit Pastilles in different shops, at prices ranging from 56p to 75p. Online I could buy multi-packs, working out as low as 45p a tube. This is how personal lines policies are sold - different channels and brokers present the products as exactly the same, but some sell them more cheaply.
But when I peeled back the wrapping I found none of my packets of sweets were identical, each containing a different number of red, black, green, yellow and orange pastilles. One pack even had no red sweets at all.
For a lover of the red Fruit Pastilles, that is just a disappointment. But in insurance those different colours represent different policy terms, excesses and exclusions, and exclusion of a specific cover can be catastrophic - more catastrophic than an absence of red Fruit Pastilles.

Unwrapping the cover
Peeling back the wrapping is what Defaqto does for insurance products. Even looking inside its five star-rated products, Defaqto can pinpoint significant differences. Take five-star motorcycle policies. Only 41% guarantee to replace a brand new bike written off or stolen, with most of those - but not all - doing so if the repair bill is 70% of the list price. Here are a few others:
3% include personal accident cover
7% include helmets and leather cover (ranging from £250 to £1,500)
10% include breakdown and recovery
14% include uninsured loss recovery
Selling five-star insurance products as commodities compared on price alone is woefully inadequate. Selling five-star policies against lower-rated products is scandalous.

Reckless regulator
Brokers are dumbing down their profession to the low standards set by the "poorly supervised and inadequately controlled" regulator, the Financial Conduct Authority - as the Davis report described it.
When I went to the FCA to query this, it initially told me to look at ICOBS 5.11, which states the customer must be able to claim on the policy, and ICOBS 5.22, which states brokers must give customer reasons for advice given. It also said: "The seller must explain to the consumer the reason why he considers this is the most suitable product."
When challenged that ICOBS 5.33 says the seller need only recommend an "adequate" policy, not the "most suitable", the FCA, after several days, told me it was not possible to look at individual ICOBS - despite having done just that. "To interpret one rule in isolation may be to misunderstand or misinterpret the full requirements made of a broker," it said. The FCA could point to no regulation helping the public know which seller is giving advice and which is not.

Barely adequate
The reality is many brokers are selling barely "adequate" policies, and selling expensive add-ons where the commission is the biggest slice of the customer's premium. Commission trumps customer needs.
Worse still, brokers just turn their backs if the standard policy does not fit. I needed a travel policy for my son, on a working visa in Australia. All travel policies exclude manual labour. The definition varies but cover for heavy lifting, construction or working at height - the jobs he had lined up - are absolute no-nos. But I only know this because I read the exclusions and asked. I would have been sold the wrong product by nearly every seller I contacted if I had not queried the exclusions. That is the broker's job, not the customer's. BIBA's Find a Broker Service came to the rescue.

Plus ça change
The FCA says the regulations governing brokers - which have not changed since October 2004 - are being reviewed in Europe and will alter "over the next two to three years". Brokers with any sense of professionalism and pride should not wait that long.

by Chris Wheal, managing director, Wheal Associates Limited

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