Advisers could face using approved scripts when selling protection after criticism about poor intermediary product explanations by the FSA.
The move is being initiated by the Association of British Insurers (ABI) in an attempt to head off more severe sanctions from the regulator and could be implemented before the year's end.
Market research conducted by the FSA that included adviser firms, found compelling evidence of policy features not being correctly explained during oral sales of critical illness (CI).
Nick Kirwan, ABI assistant director of health and protection, believes issuing scripts is necessary, having listened to the evidence produced from mystery shopping and recorded phone calls.
"It is pretty difficult to argue against as the evidence is pretty compelling if you listen to the calls," he said.
"We have identified that some of these products have not been explained as well as they perhaps could and should have been. What can we do to raise the standard of disclosure to customers so they are making a more informed decision and have got a better understanding of what is and isn't covered?
"We have come up with an outline script and will see if the FSA buys that. If we get away with what we have got now I think it will be alright, but it is a warning," he added.
Kirwan believes the complexity of these products is predominantly responsible for the problems in explaining their features.
"Whether there is a side effect that results in products becoming simpler because they need to be explained, then I think that will be a good sign," he said.
"In some ways I hope that simplification is an outcome, but it is not why we are doing this. It is not for us to design the products.
"Implementation is something we will do quite quickly - by the end of the year I expect, but we haven't discussed that exact time frame yet," he added.
The action is primarily aimed at intermediaries operating under Insurance Conduct of Business Sourcebook (ICOBS), where an oral disclosure regulation exists (under ICOBS 6.4.2). This states: "If a firm provides information orally during a sales dialogue with a customer on a main characteristic of a policy, it must do so for all the policy's main characteristics.
"A firm must take reasonable steps to ensure that the information provided orally is sufficient to enable the customer to take an informed decision on the basis of that information, without overloading the customer or obscuring other parts of the information."
Intermediary group Lifesearch has not been named or spoken to by either the ABI or FSA regarding the problem, but does operate under ICOBS regulation, and so could be affected by the proposals.
Matt Morris, senior policy adviser at Lifesearch, believes a standard script might be unworkable and could take away from the point of providing individually focused advice to clients.
"Ultimately we want to know that the customer understands the product," he said.
"But I would be a bit doubtful about a script, although that depends on the details."
Morris also questioned the ability of the ABI to enforce the measures outside its membership, and suggested it would be insurers selling direct the FSA would target.
"I don't really see how the ABI can give advisers advice," he said.
"The bottom line is, if someone in the industry has an idea that could improve the market we would talk to them about it, as would most advisers.
"If someone has an issue then the industry should have a discussion about it and take a way forward together," he added.
