Rule 19 – how it affects advisers and the industry, and are there tools to support advisers in complying?
In September 2019, Rule 19 of the Policyholder Protection Rules underwent critical changes impacting insurers and financial advisors. The changes in relation to the termination of long-term policies brought about the inclusion of the Replace Advice Record (RAR), which applied when policyholders were replacing specific policies with the support of their broker. Although these changes were brought in almost a year ago, navigating through the changes still creates challenges for the industry.
The new RAR was developed to encourage full disclosure to clients, and assist them in understanding the full implications of changing their policy to another insurer. The RAR is used to effectively advise the client on the replacement policy and encourages the policyholder to make a decision that will benefit them and their financial future. The detailed RAR compares differences between the replacement policy and the original one, thereby ensuring that the client’s policy portfolio is not adversely affected and that both insurers and the broker abide by the rules. Rule 19 is addressing an important area of our industry, however it does come with its disadvantages, one of which falls on the shoulders of the financial advisor. When a client chooses to change insurers, brokers are now required to complete lengthy documentation on why they are changing their policy. This comes with increased paperwork for advisors within an already heavily regulated industry.
To help minimise the impact of the new regulations on advisors, BrightRock developed a useful tool that easily populates the RAR form for brokers. With this tool, completion of the RAR form can be done far faster. Advisors can therefore save on time spent on administrative work, and devote more time doing what they do best – dispensing financial advice. While BrightRock has compiled the information to save time, it’s important that financial advisers need to read the content and make sure they agree with it. A template like this can never and should never replace a financial adviser’s knowledge and advice, but if used as intended, it can save advisers a significant amount of.
When an individual applies for cover, Rule 19 requires insurers to inform the Registrar if a financial advisor did not let the insurer know that a policy is a replacement policy. If it is revealed within six months of activating the policy that it was in fact a replacement policy, the client will be informed that they can cancel the replacement policy. They can do this within a cooling-off period of 31 days from the date the insurer informs them. In a situation where the insurer was not informed of the change in policy by the advisor, and the insurer does not receive the RAR within the appropriate timeframe, a review process could result in the claw-back of commission.
When receiving the RAR, the insurer reviews and evaluates it against standards set out by the Financial Sector Conduct Authority (FSCA) and the FAIS General Code of Conduct – section 8(1)(d) – within 14 days. This ensures that the RAR is completed adequately and signed by both the client and advisor.
The RAR is given to the previous insurer by the 14th day but if the RAR is not completed correctly and has inadequate information for the client to base their decision on, the previous insurer is unable to cancel the policy based on the RAR. If the review and evaluation of RAR is not done correctly and the previous insurer sends an inadequate RAR to the new insurer, the new insurer is required to report the previous insurer and the advisor to the Registrar of Long-Term Insurance. Under the conditions of the new RAR, replacement policies will not be activated without an RAR and new policy applications indicating that this is not a replacement policy will not require an RAR.
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