Brokers are regularly misleading customers about the provision of optional extras, according to the FSA.
A review of general insurance brokers’ transactions, outlined in a factsheet on the City watchdog’s website, shows that in 30% of cases the information presented to the customers was “misleading”.
In 70% of the transactions reviewed, brokers presented information which was “unclear and potentially misleading".
The factsheet says: “In cases reviewed firms had not explained what the additional extra would do (or that it was optional), how it matched their customers’ demands and needs, and had not properly disclosed the price to the customer.” The FSA says in the document that it will take action against firms that deliberately mislead customers.
The survey also uncovered confusion on the part of firms about whether they are advising and what constitutes an advised or non-advised sale.
In over half of the transactions reviewed, firms’ documentation indicated ‘advised sales’ where there was no advice or a recommendation from the firm for the additional extra, and in some cases no recommendation for the main policy. The fact sheet says that the FSA will be carrying out a further review of disclosure, focusing on the documentation firms are presenting to customers, which will "inevitably" look at optional extras.
Where the customer is just given information and left to decide whether the policy suits their needs with no advice or recommendation made by a firm, the documentation should indicate that the sale is non-advised.
It says the confusion and inconsistency over whether the broker is advising or not can often be traced back to the initial disclosure document or terms of business.
The FSA advises that the demand and needs statement (DNS) for an advised sale should be “clear and concise”, setting out what you discussed with the customer and what was identified at that discussion as being the customer’s demands and needs.
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