Pierian Spring eNewsletter:-

Below is an email that was sent to us from one of our avid reader. Do you agree or disagree with their thoughts?

Dear Bill,
I note with some interest the debate on the recent product development giving advisers the capacity to "pick your disease" when selling trauma cover.
It is fair to say that for some time I have been concerned when recommending a trauma product to a non-standard life that if exclusion is offered, there is normally no reduction in the premium if the policy is otherwise issued with reduced benefits.
Those exclusions however usually relate to non-core items like blindness etc. In my experience, insurance companies decline cover for trauma if the medical history indicates a more than standard chance of the occurrence of the core benefits of cancer, heart attack or stoke.
So, there is scope for insurance companies to reduce premiums if they decide to delete any benefits from the policy as proposed. No problem with that.
However, the recent development in my view is dangerous for advisers, not insurance companies. There are just a few scenarios in which I believe advisers are going to put their necks on the block if they succumb to temptation.
1.      The adviser accepts the client's argument that the client is only worried about cancer or cardio vascular issues because his friends have had it or it runs in the family or he thinks he is fit and just wants cancer cover.
2.      The adviser accepts the client's proposition that the comprehensive product recommended is too dear and then offers to that client a policy providing cancer cover only, as an example.
3.      The adviser sees an opportunity with a potential client to make a replacement sale and sells the client, who has with an existing fully featured contract, a policy which has reduced benefits.
All of these scenarios reflect the reality of post FSR advising.
By that I mean there are apparently still some advisers who do not seem to understand that the insurance company (any insurance company) is in no way responsible for the advice provided in the sale of the financial product.
Because insurance companies no longer are responsible for advisers in any way, we have seen a reduction in the high quality of products in the last 4 years - but some advisers either don't know this, or worse, don't care.
As an example, I draw your attention to our recent study on Interim Cover. Interim Cover used to be a simple accident based concept but now has huge compliance problems for advisers who do not take the time to explain to the client, before the client signs the application, what is in and what is not in the Interim Cover certificate. No overseas cover would surprise many advisers, as would exclusion for the taking of alcohol.
In addition, as we now know, advisers can go to a product update presentation and be only told the good bits that have changed (in the eyes of the insurer anyway), but are not told that up the back of the product a number of features and benefits have been whittled down and the number of exclusions have been added.
I am constantly amazed by conversations I have with advisers who say after such product "launches" that brand x is a fantastic product and when I ask them a question about brand x product and a particular nasty aspect of that product(e.g. a criminality clause), they are blissfully unaware of what is contained in that contract.
Fascinating isn't it- we won't trust politicians because of "the devil being the detail" but we blindingly accept the spin from life insurance manufacturers. Go figure!!!!
Advisers beware. ASIC require you to do your own reasonable additional enquiries and not to rely solely on research provided by the dealer.
In relation to point 2 above, advisers must understand that they are not God. Neither they nor their clients can predict6 future health.
Advisers must also understand that they are the professional, and the client IS NOT. One of the aspects of being a professional is that you use your knowledge, training and skill to do community good, you put the needs of your client BEFORE your personal gain and you always give the client BOTH sides of the proposition
In my view, advisers should not ever allow a client to persuade them that it would be a good idea just to have the trauma policy that insures say cancer or cardio vascular matters. No one knows what illness they may get in the future and cherry picking one event can lead to disastrous consequences for all concerned.
Please remember that when it comes to a court of law, no amount of notes on your file will protect an adviser who allowed a client to convince him that cancer was the only real matter to be covered, because the court will say "you are the professional, it is your job to advise" and such advice should be done in a manner understandable by the client. In court, judges believe clients who say "he did not tell me", not advisers.
The availability of limited events trauma contracts in my view may lead to a rush of advisers, who like all of us, may be faced with complaints from new or existing clients about the ever increasing cost of stepped premium trauma policies, deciding to offer to the client a policy which covers only cancer for a reduced rate.
The Replacement Policy Advice section of the SoA is not big enough for an adviser to cover his backside in a situation such as that.
You would have to acquire signed separate statements from the client to protect yourself from being sued when the client has a heart attack.
As you can see from my comments above, I am not best pleased by the introduction of this type of concept by some insurance companies.
These options, if taken up by a considerable number of advisers, are going to give this industry a bad name. The financial advice industry (read investment advisers) right at this moment has got a bad name because of the world economic crisis, but if this availability of lump sum "dial your disease" trauma products is abused, and it is my belief that it is certainly open to potential abuse, the life risk industry will bring down on it the unsympathetic harsh and heavy hand of the regulators. In fact I would go so far to say the risk of advisers acting in an unconscionable manner, in breach of the Trade Practices Act, is very high.
Here is a final thought:
Do advisers think that if these “dial your disease” products had been available 12 months ago, and an adviser had written a Cancer only Trauma Policy and the client suffered a stroke during the Victorian Bush Fires, what do you think their chances are of being sued by this client who suffered the stroke during these fires?
By selecting the Cancer policy, or another similar product, then suffered a stroke, that client is may more than likely going to have long and expensive medical treatment at great costs, and maybe coupled with pain and/or suffering.
How long do advisers think that a court would take to award a claim for gross negligence against that adviser who sold a limited product, just to get the sale, without detailing in writing what the differences between a full featured Trauma contract, or one paying only limited benefits?
Be very very careful out there.

Caveat Venditor - Let the Seller Beware;

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