'It is becoming increasingly difficult dealing with insurers'

We should all have carried out a fair value assessment on all legacy life policies – at the very least having asked insurers to confirm that their legacy products represent fair value for the clients.

Our experience is that some insurers have published statements on their websites to say that current products offer fair value, but their response on their legacy books has been patchy with a typical response being, ‘We will tell you on a case-by-case basis if the policy isn’t fair value’. We have done what we can in this regard.

However, in terms of the consumer duty, the issue is not only about fair value of the product but also about offering the client an ongoing service where you are in receipt of ongoing income – a big issue is that advisers may not have the systems/records to be able to do this.

It is becoming increasingly difficult dealing with insurers as they are losing the staff with expertise on their pre-Retail Distribution Review contracts and consolidation within the industry has magnified this issue.

What advisers need to consider 

In many cases the client will actually be the trustees of the policy and advisers should have taken the trustees on as clients and have carried out anti-money laundering checks on them.

Industry back-office systems are not good at identifying trustees, but rather hold assets by life insured. Trustees have assets worth millions of pounds tied up in insurance policies and spend little or no time on reviewing them and often receive very poor information from insurers and advisers.

Trustees should be reviewing the sufficiency of cover and whether a policy remains appropriate. 

If clients have made gifts then perhaps cover can be repurposed to cover a seven year tail? If gifts have been made is the level of cover now too high? If assets have increased in value then should trustees think in terms of increasing cover?

Trustees should also be reviewing any contractual options within the contract: Are there renewal or conversion options? Should these be exercised? If a contract is written to age 65/70 but the client, will want to maintain cover through to age 90 or if wanting permanent cover, then should the trustees be advised to extend the contract immediately or wait until the last possible date? 

When there are renewal/conversion options to term insurance then overall it will almost invariably be worth taking the option at an earlier date rather than deferring the decision, but for younger clients looking to maintain permanent coverage then this is likely to be more marginal.

Many pre-RDR 2013 contracts have investment elements and surrender values. Whether the current investment selection is correct for the trustees given the very long-term nature of the contracts is something that should certainly be considered.