Customers with personal accident insurance need an explanation of the extent of their cover, but it is not quite so straightforward as there are terms that need to be defined. Robin Wood explains

One of the more important aspects of personal accident insurance is the definition of disability. Because the definitions vary in their exact wording we are going to look at generic definitions which may seem a little truncated when compared with what you are used to.There are three that we need to consider and do not imagine that this is a subject that you can ignore. Personal accident and sickness crops up all over the place either as a policy in its own right or as an extension to another.There are three instances of where personal accident and sickness affect an individual's ability to work:

  • Unable to undertake one's own occupation
  • Unable to undertake one's own occupation or an occupation for which one is suited by experience or training
  • Unable to undertake any occupation.
  • Let us consider these definitions in relation to temporary total disablement. Why should one want cover for temporary total disablement?The demand (and indeed need) of the average man in the street is to be able to afford the mortgage and meet the cost of day-to-day living and financial commitments. If he were unable to undertake his own occupation then consider the following definitions:Unable is defined as cannot;Undertake is defined as to carry out in full or in part;Own occupation is defined as what the insured was doing as a job on the day before the onset of disability.On the face of it these definitions meet the needs of the client and the policy is suitable, as long as care is taken in calculating the amount that will be needed. If this insured is disabled to the extent that he cannot carry out the job in full, there will be a payment. In all likelihood, there will be a clause reducing the benefit by the amount of money earned in a part time capacity.Now consider a man unable to undertake his own occupation or an occupation for which one is suited by experience or training.What does the underwriter mean by this. It is a broker's duty to clarify these points before recommending a policy.Does the underwriter mean that the insured should go back to work in a similar paid job? For example, an experienced solicitor earning £75,000 per annum may be suited by experience and training to undertake a junior office job at £20,000 per annum. Does this mean that no benefit would be paid if such a job could be undertaken?In many cases what the underwriter means is that if by experience and suitability a £75,000 per annum solicitor could undertake a similarly remunerated job in the legal profession, then that should happen and no benefit will be paid. If the job is not so well paid then there is normally a provision for a proportionate benefit to be paid.For example, if the benefit is 50% of income then the insured would receive 50% of the difference between the insured sum and the lower income.

    Underwriters' interpretationThis all seems very fair, but what is the actual wording of the last policy you recommended to a client and could the strict interpretation be far harsher than this? Remember that many underwriters may seem like Jonesy the butcher in Dad's Army when you place the insurance, but when it comes to policy interpretation and paying claims it is often the image of Attila the Hun that comes to mind.Certainly, if we now look at the needs of our man in the street the suitability of the policy is not so clear. Indeed we have to spend a little more time working out whether in the event of disability he will actually be able to meet financial commitments.Some policies use a definition of disability. as being unable to undertake any occupation. It is a horrible option and one that should normally be avoided if possible. Consider that an occupation can be anything that earns income, so that one would, in the strictest interpretation, have to be totally incapable before any payment could be made.By now you should be checking the wording of all the personal accident policies you recommend even if it is an extension to another contract, such as motor or household. The chances of having your customer meet his demands and needs are now remote and in the event of a claim you, the broker, are likely to be in big trouble.Ask yourself this question: " How many people have you come across who are so disabled that they cannot carry on any occupation?"The fact is that each of these definitions attracts a wildly different rate of premium so the more restrictive the definition the cheaper the premium until with the last option there is a no claims bonus. The bonus is for the insurer in that the insured is unlikely to be able to claim.Such a policy is only likely to be suitable for someone who wants the cheapest premium and understands the limitations, perhaps is unable to obtain terms under the other options but still wants some cover. Or the policy could be used in disaster planning when total incapacity or, in particular, loss of mental function can have a short term financial effect, for example a key man in an organisation.

    Policy suitabilityIf the last definition meets the needs of the customer then the suitability of the first two is called into question, as they are both likely to produce a more expensive premium.Ultimately, if the policy you recommend as an intermediary is not reasonably suitable, or there are obviously better alternatives available, you may be non-compliant. Now that is a learning point.Remember the golden rules:

  • Gather the information (the fact find)
  • What does the client want (the instructions/demands)
  • Look at the information and the market (analyse for suitability)
  • Make a recommendation (demands and needs)
  • Information about the insurance (key features).
  • And the ultimate test is: does it achieve what the client wants, or in the alternative what you recommend that the client needs? If both of these criteria might not be met - for instance, a claim might not be met in part or in full or there might be no cover - then the customer needs to be told.The customer's knowledge of insurance may be taken into account when deciding what to explain. But with over 200 reports to the courts on broker and insurer negligence, I promise you that ignorance is more common than hay-fever. It is best to treat everyone as having 10% of the insurance knowledge you think they have. This is what the FSA refer to as risk management and from my experience it is a very solid approach to staying in business.
  • Robin Wood is chairman of RWA Group
  • Using this CPD pageFor the vast majority of practitioners and indeed support and supervisory staff in our industry, CPD is about regular learning and study that is planned, recorded, timed and evaluated. If you are a member of a professional body with a CPD requirement then there will be certain rules regarding the quality and nature of study material, and the way in which it is recorded.For staff of GISC members this means recording on your individual training file what the learning was, who provided it and when.It might be structured, such as a course, a learning programme or exam study. But it can be unstructured. This form of study encompasses reading the trade press, technical material or taking part in activities to support your professional body. Some CPD requirements are points related (a little antiquated) and others require a time value to be allocated. For example, it might take one hour to read Insurance Times each week. Most of that could be put as a time value but, in reality, perhaps only an half hour was devoted to learning something. The rule is to be honest with yourself and record the time that is relevant. Always take time to make a note of what you felt you gained from the activity. This is useful information for anyone else considering the same activity.In response to the popularity of our CPD programme each week's CPD page can now be downloaded from our website. We will be preparing a binder for you to keep these in alongside the results of the exercises.