The way in which critical illness cover is explained to consumers at the point of sale must be improved, the Financial Services Authority (FSA) has said. A report by the regulator based on research in 2008, suggests that while some areas of the sales process are sound, there is room for improvement.
The FSA believes there is a significant proportion of sales where the key disclosures and information are not delivered to consumers in such a way that they are able to form a realistic understanding of the scope and limitations of their cover:
- Where the advisor said they would only give information, 53% of policyholders said that the advisor went on to recommend a product. It is not sufficiently clear to consumers whether they have been provided with information only or a personal recommendation.
- 68% of policyholders believe that they can claim for any illness that means they cannot work. The quality of explanation of the product does not enable consumers to understand the key features of the product.
- 30% of policyholders claim they do not understand well the possible reasons why a claim may be rejected. The explanation of the exclusions and limitations of the product has not been sufficient to enable the consumer to understand under which circumstances their policy is valid.
- 55% of policyholders believe that they only needed to provide more information in the event of a claim. Consumers have not appreciated from the sales discussion the importance of disclosing material facts, both when entering the contract and as and when circumstances change.
The research found that consumers considered that they had received sufficient information about the product at the point of sale. There was also a high level of satisfaction among consumers with the product they had recently purchased. However, the FSA found serious areas of misunderstanding among consumers about their policy. This reflects the research findings that consumers place a great deal of reliance and trust in what they are told by sales people and advisors and they often do not have sufficient prior knowledge of the product nor the confidence to ask questions for clarification. The research findings also indicate that reliance cannot be placed on consumers gaining a fuller understanding of the product from the policy documentation, as only 26% read the documentation fully.The problems highlighted by the research do not appear to stem from too little information or disclosure, but from disclosures not meeting a sufficient level of quality.