Regulator in new warning on misleading life cover promotions

Jan 18th '19

This week, the Financial Conduct Authority (FCA) issued a warning to firms on misleading promotions for over-50s life cover.


The reminder to firms was sent as part of the regulator’s monthly regulation round-up.


It says that the FCA’s financial promotions team has noticed that in some promotions for life policies, consumers could be misled into thinking they are buying a policy that will cover their funeral costs – when this is not the case.


What are over-50s life cover policies?

These policies provide life cover for the over-50s without the need for customers to have a medical examination. Their proceeds can be used for payment of, or towards, the cost of a funeral.


The regulator is clear, though, that if a firm’s promotion refers to funerals and associated costs, consumers must not be misled into believing they are buying a funeral plan that will cover their funeral costs in full, if that’s not the case.


What are the issues with some current promotions?

Some current promotions are not meeting this requirement to be fair, clear and not misleading. The regulator reiterates in the new warning that ‘We expect all promotions to be fair, clear and not misleading in line with COBS 4 and PRIN 7.


It also reminds providers of the 2012 guide published by the Association of British Insurers, ‘Initial Guidance on Over 50s plans’, which can be used as a reference point when designing promotions.


What does the guidance say?

The ABI guidance has some good reminders for firms producing promotions on over-50s life cover, addressing:


  • Clarity about the nature of the product

Any material promoting the cover should make it ‘crystal clear’ that the plan is an insurance policy rather than a savings plan.


  • Risk warnings

Something that’s not only relevant to over-50s life cover: any financial promotion needs to include the appropriate risk warnings. These should have due prominence.


Specific risks to be covered in over-50s life cover policies include:


  1. Moratorium – although acceptance is guaranteed, the full sum assured may only be payable after a specified initial period.
  2. Inflation – as the sum insured is fixed, the value of the sum assured will be reduced in real terms by inflation (unless the plan includes indexation).
  3. Loss of cover if premium payments cease/no cash-in value – if the customer stops paying the premiums, they will get nothing back.
  4. Overpayment – it’s possible for a customer to pay more in premiums than the amount of the sum assured, depending on how long the customer lives. This needs to be made clear, especially if a policy has no age limit for premiums.


  • Break-even point

The guidance stresses that ‘Understanding the break-even point is likely to be an important consideration for many customers in deciding whether this type of policy meets their needs’.


The break-even point communicated to a client should therefore be the one associated with their specific quote.


The guidance also reminds firms that promotion of cover on their website constitutes a financial promotion, and that ‘firms must ensure that web pages do not allow risk disclosures to be bypassed’.


How to avoid misleading financial promotions

If you want to ensure your promotions – whether for over-50s life cover or any other product – are not misleading, you need to:


  1. Include all key information

All relevant information should be clear and prominent. Any terms or conditions, risk warnings or disclaimers should be shown with the required prominence.

  1. Ensure pricing information is clear

Pricing needs to relate to the specific product advertised, and include all non-optional charges (such as VAT).

  1. Be transparent about performance


Do not over-promise, particularly when it comes to potential returns. General financial promotions rules, as well as more specific requirements under MiFID II and PRIIPs, mean that data included in any promotion, including on performance and fees, needs to be highly accurate.


Creating searchable online libraries of pre-Compliance-approved wording, data and other content can help to ensure accuracy, as well as saving save you significant time when producing and approving materials.


  1. Make any qualifying text clear

Qualifying text can be used to clarify claims made in promotions, but this information needs to be clearly shown and not contradict any claims made elsewhere in the promotion. Again, the prominence of any disclaimers is relevant here.


  1. Have the evidence to back up your claims

Financial promotions rules demand that any claims are substantiated.


Make sure your team has given the requisite sign off, and ensure your copy meets FCA requirements around clarity and substantiating claims. If you are promoting an investment product, any reference to returns also needs to be compliant.


Ensure your financial promotions are compliant

Following a clear process can help to make sure no non-compliant promotions slip through the net. We offer a complete solution with a range of cost effective, compliance and marketing products and solutions including Financial Promotion advice that are uniquely suited to supporting firms.


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