Truth or beware

Consumers have responsibility to fully disclose information when they take out a policy, but it is the industry that must take the lead in making them aware of this, writes Drazen Jaksic

As an industry, we understand it is our responsibility to treat customers fairly but, unfortunately, the industry has attracted widespread criticism. Some believe this is well deserved, while others do not. However, amid the finger pointing, how much responsibility do consumers take for the financial decisions they have made?

Arguably, consumers neither understand, nor accept, the level of responsibility they hold as part of the contractual process. In their eyes, the onus is firmly on the provider of whatever financial product they have purchased.

At the end of 2008, the Financial Services Authority published a discussion paper on consumer responsibility to explore what steps it, and the industry as whole, could take to help consumers understand and protect their best interests more effectively. Preceding this, it had conducted some work with the Financial Services Practitioner Panel and Financial Services Consumer Panel to debate what the consequences should be for consumers who fail to take responsible actions. According to the consumer panel the answer was 'none'. The FSCP did not feel it appropriate to share responsibility, because regulation applies to the adviser or firm, and not to them.

Extensive insurance regulation has been in place for some time now but, in light of the panels' response, is it doing the job? The level of fines issued in 2008 shows that failure to comply has been no idle threat. But the fact a firm or adviser has a regulatory responsibility should not determine the proportion of responsibility between all parties involved, including the consumer.

Consumers buy on the basis of the advice they receive or the articulation of products in promotional materials and advertising. This tends to presuppose that they are sufficiently aware, financially astute and have enough understanding to make an informed decision. Good advice and sound marketing material does not, however, take the ultimate responsibility away from the consumer for their decision to buy. Despite what the FSCP's findings suggest, provided the consumer has played its part and the firm has fulfilled its regulatory obligations, there should be no recourse against the firm if the consumer is not satisfied with the product at a later stage.

We all want to build an environment in which consumers feel informed and empowered to take an active role in their financial decisions - and are comfortable in taking responsibility for them. Informed purchases, after all, should result in higher net sales because then there would be fewer cancellations and fewer complaints.

To reach this nirvana, increasing consumers' financial education is critical and steps to do so are already afoot. The government is proposing to include financial awareness as a core part of the school curriculum and the FSA is promoting its 'money made clear' site as well as continually improving its content. Success, however, will only be achieved if we can turn around the general apathy in the UK towards personal finance. We live in a society where the importance of financial services products sits very low on consumers' list of priorities. Indeed, research conducted by Assurant Solutions suggests just 25% are interested in financial matters and consider themselves financially astute.

It is also important that consumers appreciate their duty to disclose material facts. Unfortunately, the definition of 'material' is not always clear and could impact upon what is perceived to be such. One of the most common issues with insurance policies is that they are geared to the consumer's personal circumstances at the time of sale. As part of the terms and conditions, it is the policyholder's responsibility to notify their insurer of any material changes during the life of the policy. As none of us has a crystal ball, it would be unreasonable to expect a consumer to predict any future change when taking out a policy. But it should be made absolutely clear that they must be held responsible if they do not inform firms of material changes to their circumstances as and when they occur.

Non-advised sales

This is all very well in an advised sale, but what about products bought via the internet on a non-advised basis? Research shows that around 60% of people now search the web for products and quotes. In this instance, surely responsibility for product selection lies firmly with the consumer? That said, the information provided by the online provider or comparison site must be sufficient for the consumer to make an informed decision. There also needs to be rigorous checkpoints in the sales process to ensure the consumer has read the terms and conditions.

Ultimately, what would help the most in addressing the balance - both in advised and online sales - would be to clearly define the consumer's responsibility as part of the signed contract. Consumers should be fully aware that they are entering a contractual arrangement when they buy any financial services product. As with any contract, responsibility is placed on the consumer to ensure that they are completely apprised of, and clearly understand, the terms they are entering into. If in doubt, they should be encouraged to ask further questions of the provider or seek independent advice.

On the other side of the fence, there is an onus on the industry to rebuild its reputation and consumer trust. We need to address the issues raised by the Competition Commission and the FSA as swiftly as possible. Trust is essential when entering into a contractual arrangement and only if we amend our ways can we change perception.

There could be many positive outcomes from the FSA's discussion paper - greater engagement, better decision-making by more capable consumers, a reduction in complaints and greater understanding around what happens when things do go wrong. Whatever changes are put in place, they will need to bring about a change in society's attitude as a whole towards financial products. It is likely to be a slow but - hopefully - worthwhile process.

- Drazen Jaksic is managing director for the UK and Ireland at Assurant Solutions.

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