Over 50's life cover
We have recently conducted a review of the advertising of ‘Over 50’s Life Plans’. These Whole of Life plans provide a guaranteed sum, which is payable on death.
They are promoted on the basis of guaranteed acceptance without the need for a medical. However, there are some disadvantages to these products. It is crucial that customers are given sufficient information to allow them to make an informed decision about the suitability of these plans for their own circumstances, particularly as they are sold without advice.
The products we reviewed did not have any investment element, so their advertising falls within the remit of the relevant chapter of the Insurance Conduct of Business Sourcebook governing financial promotions (ICOBS 2.2). The overarching principle in ICOBS 2.2.2 is that firms must take reasonable steps to make their financial promotions clear, fair and not misleading.
The review
We looked at 44 promotions from 13 different firms covering direct mail, press, in-store leaflets, websites and TV promotions over a two-month period.
What we found
- Generally promotions were of a good standard and product benefits were balanced, with an appropriate description of relevant risks or drawbacks.
- Promotions often implied that cover was contingent on continuing payments, but this vital fact could have been made more explicit.
- On a few websites we found it was possible for customers to bypass any risk disclosures and go straight to the ‘obtain a quote’ page, which usually then allowed them to purchase the product.
- In direct mail packs, where benefits were prominently presented in the covering letter we found some examples where the letter lacked balance and did not disclose the appropriate risks or drawbacks. Instead they merely made reference to the Terms and Conditions document elsewhere in the pack.
Key requirements
- Financial promotions should be clear, fair and not misleading. To this end, where a promotion mentions particular product benefits, they need to be balanced with a prominent indication of key risks. While the responsibility lies with firms to determine how they meet these requirements, we would consider the key information for these products to be as follows.
- Payment moratorium – although acceptance is guaranteed, the sum assured is only payable after a specified initial period, usually of one or two years.
- Potential loss of cover – unlike some other forms of life policies if the customer stops paying then cover will stop and they will get nothing back.
- Paying premiums in excess of sum assured – this type of product generally pays out a fixed sum on the death of the assured. As a consequence it is possible for a customer to pay more in premiums than the value of the sum assured. In some instances customers stop paying premiums once they reach a certain age, which is typically 90. However, because it is still possible to pay in more than the sum assured, this disadvantage needs to be made clear to prospective customers.
- Inflation risk – because the sum assured is fixed, its real value will be reduced by the effects of inflation.
Other Financial Promotion considerations for firms
Cover and premiums
Any examples of the level of cover available and the premium payable should be both accurate and available to the majority of customers responding to the promotion (for example 60-75%). Firms should not quote a minimum premium and maximum payout that is only likely to be achievable by a minority of potential customers and they should provide a risk warning that a stated premium and payout combination may not be achievable by everyone.
Gifts
These products are often promoted with the offer of a free gift. Firms need to consider how these are promoted and take into account their prominence in relation to the rest of the promotion.
Payout statements
We expect that any statements about potential payouts are clear, fair and not misleading. For example, as the sum assured is fixed it would be misleading to suggest that it would be sufficient to pay for a funeral, rather than merely contributing towards that cost.
Customer testimonials
These should be up-to-date and clear about who is providing the testimonial, including information on relevant circumstances, such as the age of the customer and the number of payments made.
Comparisons
While we know that firms will want to highlight the advantages of their products over those of their competitors, it is important that any comparisons made are fair, not misleading and provide clear details of the criteria used in the comparison.
Websites
Firms should remember that their websites are financial promotions and should ensure that web pages do not allow risk disclosures to be bypassed.
Good and poor practice
Good practice
- Key risks or disadvantages were prominently displayed alongside product features and benefits.
- Website ‘customer journeys’ made consumers aware of key information and risks at the initial point of contact, while they were obtaining an online quote and also during any subsequent purchase.
Poor practice
- Product risks or disadvantages were not as evident as the benefits, or were buried in ‘small print’.
- Firms relied on subsequent documentation to provide key information. This was particularly apparent with direct mail packs, where customers were referred to Terms and Conditions for information on key risks. Financial promotions should be ‘stand alone’ compliant.
- Risks and key features were not sufficiently signposted on websites, but were labelled as ‘additional information’, which could have been missed by the consumer.
Next steps
We have written to firms where we feel their promotions did not meet our requirements. We expect all firms to review their promotions for this type of product, to satisfy themselves that they meet our ‘fair, clear and not misleading’ high-level rule. We expect firms should take prompt action to address any shortcomings in compliance that they identify.