A recent case before the Australian Financial Complaints Authority (AFCA) highlights the need to ensure clients fully understand the industry’s ‘difficult’ terminology
In a recent determination, an AFCA adjudicator reported that the complainant used two terms interchangeably in the complaint, suggesting they did not understand that the terms described very different situations under the policy.
AFCA found in favour of the broker, but the adjudicator stated that while it was not clear the broker had taken steps to ensure the complainant understood the difference between the terms, best practice dictates that brokers should do so explicitly to avoid confusion or doubt.
Terms that are common and every day for those in the industry can be tricky or difficult for consumers to understand. This is particularly the case where the terms address similar subject matter but substantially different risks.
Terminology that could lead to confusion might include the difference between “rent default” and “loss of rent”, for example, or the difference between “insured value” and “market value”.
The case was referred to the Insurance Brokers Code Compliance Committee (the Committee), the independent body that monitors compliance with the Insurance Brokers Code of Practice (the Code). The underlying good industry practice is reflected in Service Standard 5 of the Code, including:
- We will discharge our duties diligently, competently, fairly and with honesty and integrity
- when providing Covered Services on your behalf, and
- when you are buying insurance and we act on your behalf.
- We will act in your best interest by
- identifying your objectives, financial situation and needs as disclosed to us by you through your instructions;
- identifying the subject matter of the advice that has been sought by you (whether explicitly or implicitly);
- identifying your objectives, financial situation and needs that would reasonably be considered as relevant to advice sought on that subject matter (Relevant Circumstances); and
- making reasonable inquiries to obtain complete and accurate information where it is reasonably apparent that information relating to your Relevant Circumstances is incomplete or inaccurate.
The Committee asked the broker to clarify how it determines that clients understand all the terms pertinent to their needs and cover. The Committee encourages all Code subscribers to consider and review the processes they have in place to avoid such misunderstandings.
Measures that brokers could consider might include:
- Ongoing training, particularly in product knowledge; and, new staff becoming familiar with products at an administrative or support level before they can advise clients.
- Emphasising the importance of empathy skills and application; trying to appreciate the issue or conversation from the client’s perspective.
- Going through each section of an insurance package and explaining the cover in full for each section as well as ensuring the appropriate Product Disclosure Statements and Financial Services Guide are provided.
- Asking a client to sign off on each section they elect not to take.
- Reviewing commercial renewals face-to-face when possible because client circumstances can change within a policy period without them advising their broker.
- Ensuring all client communications are saved to the client’s file.
All industries have their specialist terminology and jargon. As the professional parties engaged to source suitable cover for clients, insurance brokers have an obligation to ensure their clients understand precisely what’s covered – and what’s not.