BY: FAZAAD BACCHUS
*In the spring of 2006, the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulators’ Organization (CISRO) endorsed three principles for managing conflicts of interest that might arise in the sale of life and health insurance products. These are:
1. The interests of the consumer must be placed ahead of those of the advisor
2. Actual and potential conflicts of interest must be disclosed
3. The recommended product must be suitable for the needs of the consumer
Over the years nonetheless, many insurance policies have been sold where all three principles have not been adhered to. Over the years, regulators have had to deal with many complaints regarding the right type, the right amount and the suitability of insurance purchases. If you purchase an insurance policy, your advisor should ensure that the policy he is recommending comes from different companies (albeit there are some advisors who work for career shops where they can only recommend the policy sold by their company). In this way, your interest is well maintained above the interest of the advisor. The customer must be free to choose which company he wants to deal with.
To this end, regulators have asked financial advisors to disclose to their clients whether or not they sell for many different companies and if there is a conflict of interest therein. A typical example could be where a term policy is far less expensive at another company for the same term or same value; however, the advisor may stand to benefit by way of more commissions and thus is enticed to sell you the more expensive one. This does not place the client in a better position and the interest of the advisor has taken precedence over the clients.
Often a policy is pushed upon a client, especially when there seems to be a sale going on. Let’s take for example a client who does not have any life insurance, however, the advisor’s company has a “sale” on critical illness products, so the client gets a call from the advisor who is pushing the critical illness product because it helps him and the company reach their sales targets. While the critical illness policy is good policy, what is the most suitable policy for the client.
So again, the regulators have decided to implement an additional new procedure called “reason why letter”. Your advisor must be able to identify the need which was covered, why was this particular type of product used, what your alternative products are, and whether you have outstanding needs yet to be covered. * Reason why clients should receive a written explanation of the recommendation.
1. Summarize relevant information from the fact-finding and needs assessment to explain the recommendation. 2. Where appropriate, note differences between the recommendation and the client’s choice of amount and/or type of coverage. 3. Where appropriate, mention unmet needs to be addressed in the future. 4. Include a call to action, i.e, ask questions if anything is unclear and retain for future reference.
Now when you purchase an insurance policy please remember to ask for your “reason why letter” it’s the regulation.
*Reference Document The Approach: Serving the Client Through Need-based Sales Practices© Canadian Life and Health Insurance Association Inc., 2016
