The FSA has given advisers who sell individual long-term pure protection contracts under ICOBS until the end of the year to apply its rules on 'total premium' disclosure.
Under the controversial FSA directive, advisers and providers will be forced to tell clients the total premium of a protection policy over its lifetime, but until today firms have had little idea how and when they would need to enact the changes.
Research by Cragg Ross Dawson for the Association of British Insurers (ABI) and published today suggests for fixed term contracts, consumers want to see a single number for the total premium over the term, shown with the benefit amount to put it in context, and reflecting where appropriate the scope for multiple claims.
An example wording for a fixed term contract with a guaranteed premium, level life and/or critical illness (CI) cover would be:
‘The total amount of premiums payable over the term of your policy is £_________. Remember that in the event of a valid claim, we will pay a lump sum of £_________, and your policy will end and your premiums will stop.
Please refer to the Policy Summary for more information about premiums and the benefits you can claim.'
For contracts with no fixed end date, consumers preferred a single number for the total premium over a specimen duration, shown with the benefit amount.
The ABI says the specimen duration should make sense, taking account of the customer's age and typical duration customers maintain the policies in force.
It proposes 10 years for customers under age 65 and five years for older ages.
For variable premium contracts, the ABI recommends including a statement to highlight that the amount is given for illustrative purposes only and is subject to change.
Alternatively, firms can disclose using the existing FSA approaches, including a simple declaration of the total premium over the period of the plan, and illustrations of how much must be paid after certain milestones within the fixed term of the contract or during an open-ended contract.
Firms must also disclosure that premiums and benefits are subject to review, and explain that a recalculated disclosure will be sent to the customer if premiums are changed.
The move to disclose the total amount of a premium was initially introduced for mortgage payment protection insurance (MPPI) sales in July last year but was extended, in December, to cover individual life, income protection (IP) and critical illness (CI) policies.
In reading across the rules, the FSA has being accused of misinterpreting a "simple" European directive calling only for disclosure of hidden charges, such as tax, in monthly premiums.
