Clients of intermediated insurance companies submitted 30% fewer complaints to the Ombudsman for Short-term Insurance (OSTI) in 2013 than those of direct insurers.
Intermediated insurance companies sell their products primarily through insurance brokers and independent financial advisors (IFA), whereas direct insurers sell directly to clients via telephone or online.
The former have faced a serious onslaught from the latter in the last decade (think Outsurance’s ‘cutting out the middleman’ campaign), with direct players claiming to be cheaper and more cheerful than their traditional counterparts.
However, the OSTI’s 2013 report shows that clients who insure through brokers may ultimately have a better claims experience.
“This speaks to the value of the advice that financial advisors give in sourcing the correct insurance cover for a client, as well as their role in mediating a resolution between a consumer and insurer when the need arises,” commented Edite Texeira-Mckinon, the deputy ombudsman for short-term insurance.
Texeira-Mckinon was speaking to financial advisors at a summit hosted by Discovery Insure on Tuesday. She said that the OSTI’s complaints reflected the importance of quality advice not only in sourcing cover for consumers but also throughout the entire life of the policy.
“Many consumers don’t understand what they are purchasing when they take out insurance cover and consumer education is often the role of financial advisors, who are able to manage the expectations of clients,” she said. “Be aware of rising consumer awareness of their rights and the bigger role the advisor plays in the insurance industry and the insurance experience for consumers.”
Although the volume of complaints to the OSTI increased by 19% in 2013, the overturn ratio (where the office finds in favour of the consumer) remained constant.
More regulation for direct insurers
In the past, many people became insurance brokers when they couldn’t cut it at anything else, since the barriers to entry were low and there was very little regulation of brokers.
Now anyone who provides financial advice must complete certain regulatory exams and attain a minimum level of professionalisation under the Financial Advisory and Intermediary Services (FAIS) Act.
“Professionalisation of the industry came about because of regulation,” said Caroline da Silva, deputy executive officer for FAIS at the Financial Services Board (FSB).
However, with the introduction of FAIS, much of the industry structured itself in such a way that it didn’t have to give advice, but only factual information about products (enter the call-centre agent).
“In order to level that playing field, we are going to pass a law that says that anybody selling to a customer will fall under the ambit of FAIS and will have to treat clients with the same professionalism as someone giving advice,” Da Silva told advisors.
She noted that the FSB was discussing capping binder fees, which are paid to third parties such as brokers who write business on behalf of insurance companies, since these fees were so widely divergent in the industry. “This will be forthcoming in the Retail Distribution Review (RDR), which will also address upfront commissions on insurance policies in terms of what portion can be paid upfront and how much should be paid over the lifetime of the policy,” Da Silva said.
Under Twin Peaks, the FSB will become known as the Market Conduct Regulator (MCR) and will regulate the entire financial services sector, including banks and credit providers. Da Silva said that under the MCR, regulation would be simplified across the sector and Treating Customers Fairly (TCF) would be an intrinsic principle of all future regulation.
Author: Hanna Barry