At a recent meeting with the FCA’s General Insurance Sector Supervision team, the subject of advised versus non advised sales came up.
The FCA expressed some concern as to whether sufficiently robust systems and controls were in place in all firms to ensure that the difference was fully appreciated and where firms followed a non-advised model, controls were in place to make sure that no advice was inadvertently given.
The regulator is considering a possible thematic review into this area, so it is an opportune moment to revisit the difference between the two models.
What is the difference between an Advised and Non-Advised Sale?
- An advised sale (you give advice) is where a firm gives advice to a potential customer on the merits of them buying a specific general insurance contract, explaining how this meets their demands and needs and recommending its purchase. This will be specific and individual advice to the customer and should not be generic.
This is also described as “a personal recommendation”.
- A non-advised sale (you don’t give advice) is where a firm provides information only to a potential customer leaving them to make a choice about how they wish to proceed and with no recommendation made. The customer must, however, still receive sufficient information on the product to enable them to make an informed decision as to whether it meets their own demands and needs.
When is ‘advice’ not an ‘advised sale’?
Giving what may appear to be general policy / insurance advice does not, in itself, constitute an ‘advised sale’.
You might give such ‘advice’ by:
- explaining all the relevant sections of a commercial combined policy and sums insured, limits of indemnity and indemnity periods
- describing the accidental damage section of a home insurance policy and explaining why the client might consider choosing this option
- explaining the optional sections of a tenants contents policy e.g. legal expenses, personal accident or mobile phone cover
- explaining the various sections of a travel insurance policy and limits that might be required for different areas of travel
- explaining optional breakdown cover, legal expenses or protected bonus on a motor policy
- explaining why somebody may need a certain type of insurance, for example contents or buildings cover
None of the above actions in their own right are an advised sale. This is just giving factual or general information.
The FCA sums this up in PERG 5.8.8G as, “advice requires an element of opinion on the part of the adviser. In effect, it is a recommendation as to a course of action. Information, on the other hand, involves statements of facts or figures.”
It is still not an advised sale if you provide a range of quotations for the customer but state that no advice has been given as to the suitability of the products and they should choose the policy which best suits their needs.
This applies as long as you have not filtered the results. For example, if using a quote engine and you present all the results to a prospective customer. Otherwise you are giving advice by offering selected information and influencing the customer’s decision. (PERG 5.8.11G(1))
When does your advice turn into an advised sale?
When you recommend a particular product and explain why it is the most suitable for the customers’ needs.
Examples might include
- obtaining four quotations for a commercial combined policy, reviewing these against the requirements of the customer and recommending the most suitable product, be it the most competitive, the most financially stable insurer or the widest wording for that particular type of business
- advising on the merits of a stand-alone Home Emergency Policy and recommending this over a more basic cover provided as an extension to the Home Insurance policy. The same scenario might also apply to Legal Expenses under a Property Owners’ policy or Breakdown under a motor policy
- reviewing a number of travel products to find the most suitable for a skiing trip and recommending this over others that excluded skiing or had lower limits, therefore better meeting the customer’s demands and need
- advising a customer to take out XYZ’s motor policy, even though you do not specify which version of a number of motor policies from that insurer
Also, remember advice would include recommending that a client does not take up a certain policy. For example – I recommend that you take ABC insurers policy rather than that of XYZ insurer.
If you have any questions or need further guidance, please contact your RWA Regional Business Manager.
