In the financial services arena, the question of suitability has become a stick with which to beat the IFA.

In general insurance, a requirement that products should be "suitable" to the client's needs and resources, seems inappropriate. It is their decision what they need and what they can afford. It is a burden that many feel should not be passed on to the intermediary.

The October 1999 draft of the General Insurance Standards Council (GISC) maintained an objective that proposed policies are suitable for the needs and resources of customers. When queried, this is often met with the response that it is supposed to apply to policies such as long-term care or health policies, where the need may be more obvious. However, it may yet be used as a stick with which to beat the intermediary.

One such case recently arose. A broker engaged in the insurance of brown water marine craft was asked if it was usual to insure cargo liabilities. The broker responded that in his view it was not common in relation to the operator's similar vessels. Unfortunately, due to the negligence of the vessel operator, serious damage was occasioned to cargo. The operator is now faced with litigation by the aggrieved customer. In turn, the operator is now suggesting it is the fault of the intermediary that he did not take out the appropriate indemnity insurance.

Under the law as it currently stands, it would seem that the response "the client knew he was not purchasing the insurance and therefore has no grounds for complaint" should be sufficient. However, if a requirement to offer products that are suitable to the client's needs were to be enshrined in a regulatory approach, then one can see how advising a client that it is not "usual for a similar organisation to take out this particular cover" might give rise to an exposure.

It would be preferable to make it clear to a client at the outset whether the intermediary is offering a "cradle to grave" service or merely the execution of specific task. In not doing so, the client, in hindsight, may take the view that he should have been advised of the full extent of all possible insurances that could have been placed - of course, he would have bought the cover had he known.

It is advisable for intermediaries therefore to ensure that the client decides whether he wants a cover. The client's should be informed of available covers but they should evaluate for themselves (unless specific advice is sought) if they wish to run the risk.

No doubt the intention of the GISC is to make sure clients are not persuaded to buy insurance they do not need. However, there is danger in going too far the other way if the effect of the prevention of mis-selling was clients failing to take covers they needed. Best practice would suggest a discussion of the risk, not on the basis of whether or not similar traders take out similar covers but whether or not there is a real risk or against which the client wishes to protect himself. Informed choice should be the objective rather than the burden of suitability being placed upon the salesman.