Life Insurance Advisers Warned to Review Legacy Policies

Highlights:

• Regulatory Risk: Life insurance advisers may face scrutiny from the Financial Markets Authority (FMA) if they neglect to review legacy insurance policies, potentially deeming them suitable for clients by default.
• Adviser Challenges: Advisers struggle with obtaining information on legacy products, with some providers taking up to six months to respond, complicating the review process.
• Best Practices: Advisers are encouraged to use AI and CRM tools for thorough record-keeping and to provide personalized advice that clearly documents both the advantages and disadvantages of replacement policies.

Outdated Policies Pose Risks

Life insurance advisers are being urged to actively review legacy insurance policies to avoid regulatory scrutiny, according to Steven Burgess, director of Compliance Refinery. Speaking at a Quotemonster roadshow in Lower Hutt, Burgess emphasized the importance of not neglecting older policies that may still be in force, even if newer, better options are available.

Regulatory Implications

Burgess warned that failing to review these policies could be interpreted by the Financial Markets Authority (FMA) as an adviser deeming the legacy product suitable for clients, potentially leading to censure. He noted that about half of the 3.3 million life insurance policies in New Zealand are legacy products, which may have unique features that are difficult to replicate in new policies.

Adviser Challenges and Best Practices

Advisers face significant challenges in dealing with legacy products, including difficulties in obtaining information from providers. Burgess advised using tools like AI for transcribing client interviews and customer relationship management (CRM) software to enhance record-keeping.

He stressed the importance of personalized advice, cautioning against the use of generic terms and templated wording. Proper documentation of both the advantages and disadvantages of replacement policies is crucial to avoid potential regulatory issues.

By taking these steps, advisers can ensure they act in their clients' best interests and stay compliant with evolving regulations.

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