What's the difference between advised and non-advised insurance?
The FCA distinguishes between "advised" and "non-advised" sales across various financial products, including insurance. This distinction is important because it can affect the level of service a customer can expect when purchasing cover through an insurance broker.
Advised Insurance Sales Definition
In an advised sale, the insurance broker provides personal recommendations to the customer on insurance products that are suitable for their specific needs and circumstances. This advice is based on an assessment of the customer's demands and needs.
The broker conducts a "fact-find" operation to gather information about the customer's situation, needs, and objectives. Based on this information, the broker analyses various insurance options and recommends a product (or products) that best meets the customer's demands and needs.
The Financial Conduct Authority (FCA) requires that any advice given must be suitable for the customer, considering their individual circumstances. Advised sales are subject to higher regulatory standards, including the need for advisers to demonstrate the suitability of their recommendations.
Customers benefit from enhanced consumer protection when purchasing insurance through advised sales. If the advice is later found to be unsuitable, the customer may have grounds for a complaint and potentially compensation.
Non-advised Insurance Sales Definition
In a non-advised sale, the insurance broker or intermediary does not provide any personal recommendations or advice on the suitability of insurance products for the customer's individual circumstances. Instead, the customer is provided with information about the insurance products, and they must decide which product, if any, meets their needs.
The customer is responsible for choosing the business insurance product based on the information provided. The process involves presenting the customer with options and possibly guiding them through the product features and benefits without steering them toward a specific recommendation.
While non-advised sales are subject to regulatory requirements, including clear, fair, and not misleading communication, the regulatory burden is less than for advised sales since no suitability assessment is required.
Consumer protection is more limited in non-advised sales. Since the customer makes their own choice without reliance on professional advice, it is more challenging to claim mis-selling if the product turns out to be unsuitable.
Choosing between Advised and Non-advised Services
The choice between advised and non-advised services will depend upon the individual applicant. Advised services are particularly beneficial for complex insurance needs or when the customer is not sure what coverage is best suited for their situation. The insurance market does not always provide homogenous products and unless you obtain advice from a specialist insurance broker, you may be accepting an insurance contract that has restrictive terms and conditions. Non-advised services might appeal to more knowledgeable customers who have a clear understanding of their insurance needs. However, care should be taken because insurance products continue to evolve with the marketplace.
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About the author
Simon Taylor is a respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial insurance sector as an underwriter, broker and director.