These days, Everyone's CV contains, amid other desirable sounding clichés, the magic words "excellent interpersonal skills". While this may cover a multitude of things, from success with the opposite sex to obtaining new clients, there is one particular skill broker must have - the ability to explain complicated concepts to people who may not be familiar with the subject.
Without this ability, brokers simply cannot do their job properly. The law imposes a general duty to advise clients about brokers' obligations to insurers, particularly the duty of disclosure, and to explain the terms of the insurance contract being entered into (warranties, average, and notification are but three examples).
An excellent illustration of how the mark can be missed was the issue of pensions advisers failing to explain to their clients what the implications of opt-outs and transfers were, despite the relevant codes of conduct spelling out what ought to be done. The well known case of J Rothschild Assurance v Collyear (about blanket notifications of circumstances which may give rise to a claim) describes the LAUTRO rules, setting out the bundle of principles which are commonly grouped together and called "best advice":
These are all simply part and parcel of the job of explaining. To quote one of the rules, an adviser "shall use his best endeavours to enable the investor to understand the nature of any risks involved."
Importantly, it is a two-way process. It is not enough just to give an explanation, because the investor might not understand. You have to use your "best endeavours" - which means just that, only your best will do - to make your client understand. That will inevitably involve you asking, as you go along, whether your client has understood, and not taking yes for an answer if you suspect they have not.
It is important to remember that, under the General Insurance Standards Council (GISC) Commercial Code, a member will take into consideration the knowledge held by a customer when deciding to what extent it is appropriate for commercial customers to have the terms and conditions of a particular insurance explained to them.
But it is equally important to remember that, if you decide not to explain something because you believe that customer to have existing knowledge on the matter and that belief proves to be wrong, you may be liable for any losses arising from a customer's ignorance of a subject.
The principles are the same for all brokers and intermediaries. The GISC codes, for example, require certain things to be explained to clients, but this only overlays the law that requires proper explanations to be given anyway. It isn't simply a matter of "more regulation", the requirement already exists in legal terms.
It is easy to forget that a valuable resource in helping you to understand the law is the humble English dictionary. As a definition of the word "explain", we have "make known in detail, make one's meaning clear". For "explanation", it's "explaining with a view to mutual understanding".
So next time you see a CV with "excellent interpersonal skills" on it, ask the candidate to explain something to you as if you were a customer - the duty of disclosure usually sorts the men and women from the boys and girls.
This week's exercise
Consider the following example and the questions below.
A is a Chinese businessman, living and working in London. He cannot speak much English. He goes to a broker, B, who does not understand Chinese.
With him, A has a letter a bilingual friend has written for him (in English) saying he wants to insure his warehouse against all risks. B looks at the letter, which gives enough detail about the property to complete the proposal form.
What must B do before he can act for A?
a He cannot act for A at all, because he is not familiar with Chinese insurance law.
b B needs only to fill in the proposal form from the letter and ask A to sign.
c He must either get an interpreter who can understand insurance, or send A to a broker who understands Chinese.
d B must ensure he visits the warehouse himself.
Could all this be done by post instead?
a Yes - the most suitable policy is in plain English and everyone is deemed to understand that.
b Yes, provided the proposal and the policy are translated into Chinese first.
c Not in this case, where A and B cannot understand each other.
d No, because it is negligent not to do it face to face.
If B uses an interpreter, what happens if the interpreter misunderstands A and the insurance A gets is unsuitable?
a B is automatically liable to A.
b The interpreter has no liability to anyone because interpreters are allowed to make mistakes.
c Who is liable depends partly on who caused the misunderstanding, but the onus is on B to prove it was not him.
d A has no redress because businessmen in the UK are deemed to understand English.
Where in the GISC Rules does it state: "we will explain... any significant conditions or obligations which you must meet..." ?
a Section C, The Private Customer Code.
b This is not included in the rules.
c Section 10, The Commercial Code, "Information about proposed insurance".
d Section C, 3.3, "Information about products and services".
Why CPD is important
The Financial Services National Training Organisation (FSNTO)'s mission is to improve the quality and skills of the workforce as a fundamental requirement for the sustainable competitiveness of the industry. We fully support the practice of continuing professional development (CPD) as a major contributor to achieving this aim. Many people across the sector are required to undertake CPD by virtue of the work they do or the professional body to which they belong, but everybody can benefit from continuing to develop their knowledge and skills.
GISC reference notes
The following sections are the most specific with reference to the giving of information and, therefore, the duty to explain to a customer. However, beware, this is
a continuous theme throughout the code, so it pays to read through it thoroughly.
The Private Customer Code
The Commercial Code