Insurance: business practice, suitability and eligibility

The rules in ICOBS 7 were amended so they were closer to the wording in the Distance Marketing of Consumer Financial Services Directive (DMD). The requirements applying to insurers are unchanged.

Intermediaries and the claims handling rules

In general, the claims handling rules apply to the insurer. But our Handbook rules (ICOBS 8.3) apply to the intermediary. Principle 8 requires conflicts of interest to be managed fairly. It states you should consider whether you can manage conflicts of interest through disclosure to the customer and obtaining their consent.

If you are acting for an insurer at the claims stage, and you also arranged the policy for the customer, our rules (ICOBS 8.3.3G(3)) say you need to consider the risk of becoming unable to act without breaching your duty to either the insurer or the customer. You should tell the customer you intend to act for the insurer in handling the claim.

Your sales process and giving advice

'Advice' must be on the advantages and disadvantages of the customer buying or selling a particular insurance contract (or contracts).

For example, recommending that someone should buy household contents insurance (without mentioning a specific insurer or policy) that is unconnected with the sale of a contract would not be defined as 'advice'.

Meet the rule/guidance on eligibility

Our Handbook guidance for all contracts says the firm should take reasonable steps to ensure that a customer only buys a policy under which they are eligible to claim benefits. If the firm finds that only parts of the cover apply, it should inform the customer.

For general insurance, an example would be where a leaseholder asks for buildings insurance – this should make you ask whether buildings insurance is already in place through the freeholder. Or if a pet owner with a pet over the age accepted under a pet insurance policy asks you for cover, you should point out that he would not be able to claim under the policy and not sell it to him.

Making sure the customer discloses material facts

Under our guidance at ICOBS 5.1.4G, which refers to restrictions in ICOBS 8.1, claims by a consumer can't be rejected for non-disclosure of a material fact the customer couldn't reasonably have been expected to have disclosed. Ways to ensure a customer knows what they should disclose include:

  • explaining to them their duty to disclose material facts, what they should disclose, and the consequences of non-disclosure (ie, that their claim could be rejected or reduced if they give false information or fail to disclose important information)
  • asking them clear questions on what the insurer considers material to the risk