Regulation - Following the paper trail

This is a timely question, with the first of this year's Financial Services Authority Treating Customers Fairly deadlines upon us at the end of March. Matching a product to the client, and the quality of advice given is the subject of two of the six TCF consumer outcomes, and one which the FSA has said will be the subject of further thematic work.

The regulatory requirements come from a background of independent financial adviser business, which incorporate a holistic customer fact-find, detailed Know-Your-Customer requirements and extensive suitability reports. Much of this now forms the basis of the general insurance rules, albeit in a reduced way which the FSA view as being proportionate to the level of risk to consumers that GI products represent. However, they still expect to be able to see a distinct and discernible link between the fact-find, the summary of cover, and the demands and needs and suitability statement.

Whether you use enquiry forms which are specific to insurance types, or a single form, or even a sample proposal form, they should be completed to a standard that enables the monitor to understand what the customer's requirements were. Remember that this review could be carried out by a supervisor at your firm, your compliance consultant, or someone from the FSA. Unfortunately, all too often in the past, these details were scrawled on a piece of scrap-paper, in largely illegible handwriting, and only consisted of the minimum information necessary to get the quotation.

In effect, your fact-find should show that you asked all of the questions necessary to rate the risk and establish what cover the customer wanted, and that the cover provided under the policy selected matched the customer's needs.

The final link in the chain is the demands and needs statement, which effectively brings these two areas together by saying, "this is what you wanted, and this policy gives that cover, and that is the reason why we are recommending it".

Of course, that is over-simplifying a little, and you will also need to incorporate non-cover related "demands" into the statement, such as "a cheaper premium" and "good claims service" as well as using your expertise to point out any underlying needs. These could be areas of cover that the customer didn't necessarily raise as "demands", but which from your knowledge and experience of insurance, you know the customer may need, and which formed the basis of your decision to recommend that particular policy over another similar contract.

- Jim Dart, director, RWA Group.