Is it reasonable for a person taking out a life plan to expect that any payment in the event of a claim will be distributed in the way they planned?
Or, at the very least, when a life plan is set up, the wishes at that point in time should be made clear and recorded? Is it incumbent on the adviser to ensure this happens?
I would say the answer is yes to all the above. The recent Swiss Re Under the Microscope report highlighted the risk factors potentially impacting death claims, focusing on:
– The increased proportion of life policies being sold to cohabitees for their partner without ensuring the partner can claim
– The increasing proportion of single life policies
– The increased volumes of non-advised sales (the bulk of which are not written in trust)
– The market trend of unmarried couples continuing to live together
– The proportion of policies written in trust remaining low
A fair interpretation from the Consumer Duty requirements would suggest that both distributors and manufacturers must be able to demonstrate they have taken all reasonable steps to protect customers and their beneficiaries from the risks of life cover proceeds not being available to the intended person.
Not demonstrating that all reasonable steps are taken to ensure policies are set up correctly with benefits going to the right person could create future negligence claims.
So, would a contractual beneficiary nomination form identifying the person(s) chosen to receive the benefit of a life assurance policy, established at policy outset, simplify the process?
Beneficiary nominations provide a simpler alternative to a trust. If the customer knows who they want to benefit, then using a beneficiary nomination means insurers automatically pay the nominated beneficiary without any need for waiting for probate. If a process is simple to understand and implement it will be used.
Nominees can be changed in the future, providing the flexibility needed in a long-term contract, and most insurers could establish a process to remind clients annually to ensure appropriate beneficiaries are included.
Currently, advisers are faced with complex, inconsistent journeys from insurers for trusts and beneficiary nominations, making it difficult to be totally familiar with them all. Some journeys are online, some paper, some require e-signatures, which clients often struggle with. Maintenance and future changes for trusts are typically complex, usually involving paper and signatures.
For more complex requirements, existing trust arrangements can be used, and some advisers may prefer to continue to use them.
However, our members would like to see an increased adoption of contractual beneficiary nomination across all protection manufacturers, using similar wording and processes at application and on-risk stage to increase simplicity and familiarity for advisers. This should encourage greater take-up and improve consumer outcomes regarding payout of claims to the person who expected to receive it.
Beneficiary nominations should be integrated with online submissions via existing portals, especially with the increased emergence of underwriting acceptances at the point of application, with the same journey for direct to insurer submissions being essential, ensuring they are easily written into a policy.
The production of annual statements to remind policy holders and advisers who their nominated beneficiary is, with straightforward ability to amend if required, would also be essential.
We accept not all distributors will use beneficiary nominations and will continue to use trusts produced by insurers or their own preferred legal solutions. However, most advisers, non-advisers and direct purchasers would benefit hugely from being able to choose the beneficiaries easily when setting up a policy.
The challenge to the industry is how we get an increased adoption of contractual beneficiary nomination across all protection manufacturers, using similar wording and processes at policy application and on-risk stage.
If we can move forward on that, there is an opportunity to cooperate to produce an easy payout or simplified trust that can also be used by advisers when setting up life policies. We would be happy to lead on that industry initiative.
Neil McCarthy is chair of the Protection Distributors Group
