A campaign to force supermarkets and other firms to put suitability warnings on protection insurance sold off the shelf or through other direct channels is gathering momentum.
Lorely Burt, the Liberal Democrat MP, believes critical illness and other protection insurance products are too complex to be sold without the advice of a broker or independent financial adviser and wants sales practices reformed.
The call comes as the Financial Services Authority said this week said that critical illness can be a complex product, which the industry had made progress in helping consumers to understand. But a mystery shop by FSA officials found that the quality of explanations given specifically by advisers about critical illness cover and the illnesses it covered – “was still poor”, said the regulator.
Burt has sponsored an Early Day Motion calling for firms selling on a non-advised basis to “act responsibly” by putting a warning on their product literature which would make clear to consumers “the possible limitations of their product in the context of the other options available”.
She also wants direct sellers, including those who sell via the internet, to highlight on their product labelling that consumers cannot seek redress from the Financial Ombudsman Service for mis-selling, for example, if they bought an unsuitable product – a real risk, she believes, when buying without advice.
“By buying a bog standard product off the shelf, consumers are not being exposed to an appropriate range of products which may be more suitable for them,” she says.
“When it is something as important as an insurance or protection policy you want to make sure you are receiving some sort of advice about buying the most suitable policy.”
Burt tabled the motion in March. Since then she has received cross-party support from 53 MPs.
LifeSearch, a firm of brokers specialising in life insurance and protection, is also backing the MPs’ campaign saying there are too many complex differences between products such as income protection, critical illness and term assurance, for them to be sold on a non-advised basis.
“They [direct sellers] are leading people to believe that they know what they want and that these products are simple, and they are not,” says Kevin Carr, head of protection strategy with LifeSearch. “There can be major consequences for individuals if they make the wrong decisions. You can’t turn back the clock if you have bought the wrong type of protection policy and you are off work and can’t claim.”
However, those selling protection on a non-advised basis said they would fight any long-term move to close their market.
Virgin, which has sold life insurance directly to market since 1996 and launched an internet only cancer critical illness product earlier this year, says non-advised sales do offer choice for consumers and shouldn’t be removed.
“Advice clearly has a role for a lot of people but for a lot of others buying directly does work,” says Scott Mowbray, head of public relations, with Virgin Money.
“Our customers tend to be quite savvy and do their homework and the feedback we get from them is that they like our simple approach. We would protect this model as it is working for us and our customers.”
Direct Line, which sells insurance products through Tesco, the UK’s largest retailer, also defended its business model, saying that it products weren’t too complex to be sold on supermarket shelves.
“The thing about term assurance is that it is a product that does what it says on the tin,” says Duncan MacKechnie, managing director of Direct Line Life.
“I think it is a vastly simpler product than mortgages with all their different APRs which can be confusing for consumers, but they can be bought directly.”
MacKechnie says he would be happy to make changes to Direct Line’s protection product literature if asked by the regulator.
“We believe our labelling is already clear but we would not have an objection to anything which makes it clearer to customers that we are not providing any advice about the suitability of the product,” he says.
The Financial Services Authority is reviewing its rules for advised and non-advised sales, as part of
its wider overview of the
general insurance regulations.
However, its review of the payment protection market late last year uncovered examples where the line between advised and non- advised sales had become “blurred”.
The FSA review is expected to be completed by the summer.
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