The COVID-19 crisis will affect all business sectors – but it especially puts a spotlight on insurers who are likely to be inundated with enquiries and claims across different products, for example health, life or non-life insurance cover.
Life insurers will be considering their risks and may look to trim their policy offerings in the wake of the COVID-19 pandemic, particularly if some risks linked to the virus are deemed too great. This could mean that insurance companies include COVID-19 exclusions, if they decide that the risk is too high for them to accept.
It is therefore important that advisors are certain that they know what a client is covered for, and take extra care before advising clients to renew, switch or replace policies.
The definition of “advice” in the FAIS Act includes any recommendation, guidance or proposal on the replacement of a product and the purchase of any financial product. When providing advice to replace, the General Code of Conduct places stringent obligations on advisors to provide their clients with a thorough comparison of the existing and the proposed financial product and to ensure that a client is placed in a better position as a result of the recommended replacement. One of the requirements set out in the GCOC relates to exclusions of liability, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided. While this has always been a requirement, advisors should be extra diligent and do their homework properly before advising a client to replace a policy. Advisors must know and understand, not only the product which they are recommending, but also the product which they are advising the client to replace.
In these challenging times some clients will be looking for ways to cut expenses and advisors have an essential role to play in helping clients to make wise decisions in the circumstances. There may be instances where clients decide not to take the advice they receive or, in extreme circumstances, they may be forced to accept less cover due to affordability issues. More than ever, advisors should be keeping detailed records of their discussions with clients and their recommendations, including the existence of any risk if the client elects to conclude a transaction that differs from what the advisor recommended.
Advisors have a general duty to always act with due skill, care and diligence and in the interests of clients. Before advising a client to replace a policy, advisors must discharge their duty appropriately and ensure that it is in the client’s interest to do so.