FSA responds to concerns over advisers collating medical information

The provider's letter, as seen by COVER, was written to the City watchdog to express concern about advisers being "not trained or competent" and doing a poor job at collecting medical information.

The letter, written on 24 January 2012, made the case for this practice to be phased out.

The letter said: "This ongoing inadequacy is already discrediting the insurance industry and has the potential to discredit the pensions industry, with dire effects for the government."

The provider highlighted research it had done showing 69% of application forms completed by advisers had some missing information, mostly not affecting the underwriting decision.

But 21% of applications completed by advisers for life and critical illness had material missing information that caused a different underwriting decision.

The rates for income protection were higher with 27% of applications missing material information.

The letter to the FSA later used the condition of cancer as one example of where the practice fell down.

It stated: "The approach that many consumers take to having this dreadful condition is to categorise the condition as something else in their own minds. They may consider they don't have cancer, they have a "melanoma" or "anaemia" or simply "mild smear changes". This is the practical reality which is completely ignored by the financial service sector."

The provider went on to state that FSA legislation required advisers to be competent and trained on financial matters, but not on medical issues; that it demanded keeping records of financial matters, but not how the medical information was obtained or recorded.

In the FSA's written reply, on behalf of Hector Sants on 10 February this year, Sheila Nicoll, director of policy, said the existing FSA rules and principles were sufficient to "achieve an appropriate degree of protection for consumers in this area".

Nicoll wrote: "FSA rules and principles generally focus on outcomes which must be achieved for customers rather than explicitly prescribing how firms should undertake certain activities (such as acquiring data from customers to support the underwriting processes)."

FSA rules state that "a firm must employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them".

Nicoll stated that the FSA considered this to include staff assisting customers in submitting personal information used by insurers for underwriting purposes.

She wrote: "These rules are intended to make sure consumers understand what is required of them and the importance of accurate disclosure at the point of sale, but also that they not harmed as a result of failure to disclose information that they could not reasonably be expected to have disclosed.

"If a customer believes that they have suffered detriment as a result of a firm failing to comply with these rules and principles, they are entitled to seek redress from the firm, and ultimately through the Ombudsman Service."

The Consumer Insurance Act 2012 will come into force on 8 March 2013.

The new law will permit ‘honest misrepresentations' to be made, whereas previously the consumer was required to disclose all medical information. It will mean more prominence on the questions asked and answers given.

The new act has reformed what was previously outdated maritime law.