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FSI401
SERVING THE CUSTOMER
(v06.01)
www.theinstitute.com.au
AU
STR
ALIA
N A
ND
NEW
ZEA
LA
ND
INS
TIT
UTE O
F IN
SU
RA
NC
E A
ND
FIN
AN
CE
FSI401
(v06.01)
© Australian and New Zealand Institute of Insurance and Finance 2006
ISBN–1 74159 168 6
This work is copyright. Apart from any use as permitted under the CopyrightAct 1968, no part may be reproduced by any process without prior writtenpermission from the Australian and New Zealand Institute of Insurance andFinance.
Acknowledgements
The Australian and New Zealand Institute of Insurance and Finance wishes to
thank the following people who have helped in the preparation of these
learning materials.
Industry experts
David T Bowen, ANZIIF (Fellow)—review and additional text
Andrew Deerness, Solutions Centre, NZ—technical advice
Joe Fenech, Accident and Health underwriting manager, Chubb Insurance
Carl Gullace, ANZIIF (Snr Assoc), CertBusStud (Gen Ins), BBus (Sales Management), Gerling
Australia—support review
Karen Hudson, ANZIIF (Snr Assoc), Australian Alliance Insurance—technical advice and
additional text
David Hurford, BEcon, AFAMI—technical advice and additional text
John McDonnell, QBE-MM—case studies
Steve Meyer, QBE Insurance—Australian review
David Millar, BCom, MAITD, AIMM—additional text
Bob Morris, Senior Technical Training Consultant, HR Development, IAG New Zealand Limited—
reviewed materials
Christopher Neven—full review and additional text
Andrew Rae, BA, ANZIIF (Aff)—additional text
John Sloan FIINZ, FAII, ARM—full review and additional text for New Zealand
Lindsay Smith—technical advice and support materials
Gordon Taylor, ANZIIF (Fellow) CIP—principal review
LesleyAnn Thomas, People in Mind Limited—New Zealand review
Julia Whitford, ANZIIF (Snr Assoc) CIP—support materials
Rosalind Wingrove, BBus—technical advice and additional text
Disclaimer
This subject matter is provided by the Institute for study, on the understanding that
no person should act on the basis of the material contained in this publication
without considering and taking professional advice. In particular:
• The Institute, its directors, authors, or any persons involved in this publication
expressly disclaim any and all contractual, tortious, or other form of liability to
any person in respect of the publication and any consequences arising from its
use, including any omission made, by any person in reliance upon the whole or
any part of the contents of this publication.
• The Institute expressly disclaims any and all liability to any person in respect of
the consequences of anything done or not done by any person in reliance upon
the contents of this subject material.
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Contents
Module introduction 6
0.1 Welcome 8
0.2 What you will learn 8
0.3 About this learning module 12
0.4 About assessment 14
0.5 Student support 18
0.6 Learning on your own 20
Section 1 Financial and insurance markets 26
1.1 Introduction 28
1.2 Study of economics 30
1.3 Economic performance 34
1.4 Government economic policies 42
1.5 Financial markets 50
1.6 The insurance market 58
1.7 Taxation and insurance (Australia) 90
1.8 Taxation and insurance (New Zealand) 94
1.9 Answers to self-help questions 102
Section 2 Working with customers 114
2.1 Introduction 116
2.2 Serving your customers 118
2.3 Establishing customer relationships 120
2.4 Advising your customers 140
2.5 Identifying customers’ needs 158
2.6 Finding solutions 182
2.7 Presenting solutions 194
2.8 Negotiating the solution 200
2.9 Completing the documentation 202
2.10 Customer feedback 208
2.11 Dealing with complaints 214
2.12 Formal dispute handling 224
2.13 Answers to self-help questions 240
Section 3 Personal accident and sickness insurance products 246
3.1 Introduction 248
3.2 What products are available? 250
3.3 Answers to self-help questions 266
Appendix 272
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Contents
0.1 Welcome 8
0.2 What you will learn 8
0.2.1 Learning outcomes 10
0.2.2 Competency standards 10
0.3 About this learning module 12
0.3.1 Content 12
0.3.2 Materials 14
0.4 About assessment 14
0.4.1 Assignments 16
0.4.2 Examination 16
0.4.3 Academic misconduct 16
0.5 Student support 18
0.5.1 Your workplace 18
0.5.2 Other useful resources 18
0.6 Learning on your own 20
0.6.1 Study techniques 22
Section 01 Module
intro
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Module introduction
0.1 Welcome
Welcome to FSI401 Serving the Customer. This learning module is one of five
modules that make up the Certificate IV in Financial Services – General
Insurance. The other four are:
• FSI402 Insurance Law and Regulation (Australia) OR FSI406 New Zealand
Insurance Law and Regulation
• FSI403 Insurance Products
• FSI404 Introduction to Underwriting
• FSI405 Claims Handling.
Upon successful completion of this module and FSI402 Insurance Law and
Regulation, you will meet the Tier 1 compliance requirements under the
Australian Securities and Investments Commission’s Policy Statement 146
(ASIC PS 146).
When you successfully complete this course, you will be eligible for the
nationally recognised AQF qualification: Certificate IV in Financial Services –
General Insurance. You may also apply for associate membership of the Institute.
0.2 What you will learn
The insurance industry has always valued knowledge. In this module, we
provide the knowledge you need in order to achieve the learning outcomes
that follow—or we show you where to find it. But knowledge is only part of
the learning equation. Practical skills are extremely important, so we also
include in the module plenty of hands-on activities and tasks that help you
apply the knowledge to familiar situations in your workplace. We encourage
you to engage fully in both aspects of your learning—the theory and the
practice—to gain the most from your studies.
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 9
Serving the Customer Module introduction
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Note: If you have completed a traineeship in Certificate III Financial
Services—General Insurance or have completed the Institute’s Tier 2 General
Insurance compliance online or workshop program, some of the material in
this module may be familiar to you. This is because the underpinning generic
and core insurance knowledge for Tier 2 and Tier 1 compliance requirements
is similar.
This module builds on and extends the knowledge requirements you may
already have covered, enabling you to meet the requirements for ASIC Tier 1
compliance.
0.2.1 Learning outcomes
Learning outcomes are statements telling you what you should know and be
able to do when you have worked through the learning module.
When you have successfully completed this module, you should be able to:
• explain the impact of the economic environment on financial/insurance
services, products and the market in which they operate
• explain financial products in relation to the markets in which they
operate
• explain the specific requirements of general insurance in relation to
selling
• explain how to create rapport and establish a relationship with customers
• explain the process of identifying and analysing customers’ objectives,
needs and financial situations
• explain how to identify, develop and present appropriate strategies and
solutions to customers.
0.2.2 Competency standards
Competency standards refer to the skills you will be mastering as you
complete your course of study. The units of competency from the (FNS04)
Financial Services Training Package that underpin this learning module are:
FNSICCUS301A Respond to customer enquiries
FNSICGEN301A Communicate in the workplace
FNSASIC301A Establish client relationship and analyse needs
FNSASIC302A Develop, present and negotiate client solutions
FNSICIND401A Apply principles of professional practice to work in the financial
services industry
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 11
ASIC
FNS04
Serving the Customer Module introduction
12 v06.01
FNSICCUS401A Deliver a professional service to customers
FNSICCUS402A Maintain customer relationships
FNSICGEN404A Resolve disputes
FNSICADV501A Provide appropriate services, advice and products to clients.
0.3 About this learning module
0.3.1 Content
This module consists of three sections.
Section 1 Financial and insurance markets
This section introduces the economic, financial and insurance environment
and discusses the:
• key economic factors affecting decisions made by businesses, the general
public and the government
• operation of financial and insurance markets and the kinds of products
and services sold in these markets
• key features of the general insurance market
• products and services offered by insurance intermediaries
• taxation issues relating to general insurance.
Section 2 Working with customers
This section discusses the role of good customer service in building and
maintaining the profitability of an organisation. We discuss your role as an
insurance representative and explain how to optimise customer satisfaction
and what to avoid, as you undertake organisational procedures. Finally, the
value of customer feedback in improving service is discussed, and a brief
overview of how to handle complaints from customers is provided.
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 13
Serving the Customer Module introduction
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Section 3 Personal accident and sickness insurance
products
This section covers the special skills and knowledge needed to be able to
provide advice to customers of personal accident and sickness (PAS)
insurance. This product, unlike others in general insurance, has been
designated in Australia by ASIC as a Tier 1 product. Tier 1 products are those
that involve an element of investment advice in the transaction between
customer and insurer. To sell personal accident and sickness products in
Australia, insurance professionals must be qualified to provide financial
advice to customers at the higher (Tier 1) level.
0.3.2 Materials
This module consists of one book. No additional textbooks are required. You
will receive your assignment task for this module in a separate document.
If you have not received the correct materials, contact the Institute on
(61 3) 9613 7280 or email: customerservice@theinstitute.com.au
0.4 About assessment
Assessment for this module will be based on:
• assignment/s—worth 30% of your overall mark, and
• examination—worth 70% of your overall mark.
Detailed information about assessment and the Institute’s assessment policy
are available in the Course Handbook or on the Institute’s website:
www.theinstitute.com.au
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 15
Serving the Customer Module introduction
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0.4.1 Assignments
Assignments are an opportunity for you to demonstrate your understanding
of topics in the module and to apply them in a practical workplace context.
Generally, assignments require you to respond to questions based on practical
examples or case studies. They usually require reflection and analysis rather
than the recall of facts. In framing answers to assignment questions, you
should draw on the theory learned in the module plus any relevant
workplace experience. All answers should be your own work. They should
not replicate those of the module, prescribed text (if applicable) or a
colleague’s work. Plagiarism and breaches of copyright with be dealt with
through the Institute’s academic misconduct process.
Details of assignments, including when, how and where to lodge them,
accompany this module on a separate sheet.
0.4.2 Examination
The examination is designed to assess your knowledge and understanding of
the content of the module. It may require you to:
• answer multiple-choice questions
• provide written responses, and
• provide a written response to a case study.
Further information about the examination format will be provided to you
before the examination date and is also available on the Institute website:
www.theinstitute.com.au
0.4.3 Academic misconduct
The procedures for academic misconduct have been designed to protect the
rights and interests of all Institute students. Further information about these
procedures can be found in the Course Handbook and is also available on the
Institute website: www.theinstitute.com.au
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 17
Serving the Customer Module introduction
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0.5 Student support
The Institute has online services to help you with your studies. You can access
the Institute website at:
www.theinstitute.com.au
The Institute also has Membership and Student Services Co-ordinators to
assist you with your queries about your studies. To contact a Co-ordinator,
you can:
• telephone on (61 3) 9613 7280
• fax on (61 3) 9613 7299
• mail to the Institute, Level 17, 31 Queen Street, Melbourne 3000
• email: customerservice@theinstitute.com.au
0.5.1 Your workplace
Some of the activities and learning strategies in this module ask you to draw
on your workplace experience. If you are working in the industry, don’t
forget that your colleagues and co-workers can be important resources too.
Their experience and knowledge may be helpful to you as you work through
this module. Your workplace may also have its own resources. Ask your
supervisor or manager about how to access them.
0.5.2 Other useful resources
Other sources of useful and current information are print and electronic
media. A good way to keep up to date with current issues in your chosen
field/s of study is to look out for:
• professional journals
• financial pages of your daily newspaper
• workplace publications
• financial services websites.
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 19
Serving the Customer Module introduction
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0.6 Learning on your own
There are many advantages to self-paced, independent study— a full set of
learning materials is provided, and you can study when and where you want.
You can also plan your study time to fit in with other commitments like work
or family.
However, there are also challenges. Learning requires discipline and
motivation. The following table provides tips to help you make the most of
the time you have available to study:
Study tip
Find a suitable place to study… Most people need order and quiet to study
effectively, so try to find a suitable place to do your
work—preferably somewhere you can leave your
study materials out until next time.
Organise yourself… Have your study materials organised in one place
and keep your notes clearly labelled and sorted.
Work through the topics in your learning module
systematically.
Seek help for difficulties straight away. Never leave
this until later.
Plan… Make a study schedule and stick to it. Set specific
times each week for study and keep them free of
other activities.
Make a note of the due date for the assignment and
plan for extra study time in the lead-up to this date.
Manage your time… Set aside a reasonable amount of time each week
for study—but don’t be too ambitious or you won’t
be able to keep up the pace.
Work in productive blocks of time with regular
rests.
Ask for help if you need it… No matter what the difficulty is, seek help from
your colleagues and friends, or contact the
Institute—and don’t give up!
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 21
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Serving the Customer Module introduction
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0.6.1 Study techniques
This module provides you with a complete self-paced learning program to
help you achieve success in your studies. It is designed as a workbook to
involve you actively in your learning. The following table provides
suggestions for making the best use of this learning module.
Study techniques
Read the learning outcomes… Before you begin to work through the module, it is
important to read the learning outcomes. These will
give focus to your learning and tell you exactly
where you are heading.
Work at your own pace… Work steadily through the module at your own
pace. The time you take to complete the material
will depend on your own individual learning style.
Make your own notes… Each section includes information, case studies and
activities. These are designed to help you gain the
knowledge and skills outlined in the learning
outcomes.
To get the best from your study time, read and
absorb the information in the module, making
notes in your own words as you go. For example:
• draw diagrams
• make a list of key points.
Complete all activities… Make sure you take time to complete all activities.
They will help you apply what you have learned to
your daily work. Some feedback is provided to help
to reinforce your learning.
Put the learning into practice… The best study technique of all is to talk to your co-
workers about the information, ideas and activities
in the module, and then put them into practice in
your workplace.
Prepare for the exam… The secret of exam success is to be well prepared. If
you follow all of the tips listed and revise
frequently, you will find that you are well prepared
to sit for the exam. Make a note of the due date for
the assignment and plan for extra study time in the
lead-up to this date.
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 23
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Section01 Fin
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Contents
1.1 Introduction 28
1.1.1 Learning outcomes 28
1.2 Study of economics 30
1.2.1 Finance sector 30
1.2.2 Business sector 32
1.2.3 Household sector 32
1.2.4 Government sector 34
1.2.5 International sector 34
1.3 Economic performance 34
1.3.1 Interest rates 36
1.3.2 Exchange rates 36
1.3.3 Demand and supply of commodities 38
1.3.4 Inflation/deflation 38
1.3.5 Economic cycles 40
1.4 Government economic policies 42
1.4.1 Monetary policy 42
1.4.2 Fiscal policy 44
1.4.3 Employment policy 44
1.4.4 Industry policy 46
1.4.5 Tariff policy 46
1.4.6 International policy 46
1.5 Financial markets 50
1.5.1 Analysing financial markets 50
1.6 The insurance market 58
1.6.1 Insurers 58
1.6.2 Insurance intermediaries 58
1.6.3 General insurance classes and products 60
1.6.4 Standard cover 64
1.6.5 Accident compensation—New Zealand 68
1.6.6 Conditions and exclusions 70
1.6.7 Pricing insurance products 74
1.6.8 Selling insurance products 76
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1.6.9 Every sale and claim is important 84
1.6.10 Developing new insurance products 86
1.7 Taxation and insurance (Australia) 90
1.7.1 Fire Services Levy 90
1.7.2 Stamp duty 90
1.7.3 Goods and services tax 90
1.7.4 How is tax calculated? 92
1.8 Taxation and insurance (New Zealand) 94
1.8.1 Fire Services Levy 96
1.8.2 Earthquake cover 98
1.8.3 GST 100
1.9 Answers to self-help questions 102
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Section 1
Financial and insurancemarkets
1.1 Introduction
The business of insurance is part of a larger financial market where products
and services are bought and sold. These, in turn, sit in a wider economic
environment, which affects every transaction within the financial market.
The economic environment influences the way participants in the economy
spend, invest and borrow money.
This section introduces you to the economic, financial and insurance
environment, and discusses the:
• key economic factors affecting decisions made by businesses, the general
public and the government
• operation of financial and insurance markets and the kinds of products
and services sold in these markets
• key features of the general insurance market
• products and services offered by insurers and insurance intermediaries
• taxation issues relating to general insurance.
1.1.1 Learning outcomes
When you have completed this section, you should be able to:
• explain the impact of the economic environment on financial/insurance
services, products and the market in which they operate
• explain the operation of financial markets
• explain financial products in relation to the markets in which they
operate
• explain the specific requirements of general insurance
• explain taxation relative to general insurance products.
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 29
Serving the Customer Financial and insurance markets
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1.2 Study of economics
As its name suggests, ‘economics’ considers what is happening in the
economy. The economy comprises:
• all those in employment (the labour force)
• those people looking for employment
• business
• financial intermediaries
• government
• households (the people who supply the labour and invest their savings).
The economic environment influences the performance of each sector in the
economy. Economists study how the performance of one sector affects the
performance of the other sectors. Let’s look at each of these sectors
individually.
1.2.1 Finance sector
The insurance industry is part of the finance sector and its performance is
affected by:
• other industries within the sector—e.g. banks, share brokers and fund
managers
• other sectors in the economy—e.g. business, government, etc.
Business and household spending, savings or borrowings also affect the
performance of the finance sector—for example, when these sectors increase
their savings, some or all finance sector industries benefit from the increased
investments.
The key players in the finance sector compete for the limited borrowing and
investment capacities of the household and business sectors.
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 31
Serving the Customer Financial and insurance markets
32 v06.01
1.2.2 Business sector
The business sector includes organisations such as mining and industrial
companies, farming enterprises or forestry. The performance of the business
sector is influenced by:
• the spending, saving and borrowing patterns of the household sector
• government economic and industry policy.
In turn, the business sector affects the performance of the finance sector,
through its investment program; for example, employee superannuation, new
acquisitions, etc.
1.2.3 Household sector
The household sector is comprised of individuals, families, unincorporated
businesses and farms.
Household spending, savings and borrowings influence the performance of
the business sector. One example is the retail industry, which includes
companies operating large department stores. When household spending
increases, these types of companies and the business sector as a whole will
benefit.
Conversely, when the household sector is spending less and saving more, the
finance sector benefits because of the increase in deposits.
When consumers borrow money to finance their purchases, the finance
sector also benefits from the interest earned on these borrowings; for
example, consumer loans, credit cards and hire purchase.
The performance of the finance and business sectors also influences the level
of income earned by the household sector; for example, self-funded retirees
rely on the performance of their investments to determine their level of
income. The income earned by self-funded retirees (and the household sector
as a whole) increases when the finance sector is performing well.
Government economic decisions also affect the performance of the
household sector; for example, if the government decides to decrease the
income tax rate for individual employees, the household’s net income will
increase.
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 33
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Both of these examples have a flow-on effect; self-funded retirees and
individual employees may choose to either invest more money or spend
more money with their increased income.
1.2.4 Government sector
The government sector comprises all tiers of government; for example,
federal, state or territory and local in Australia or central and local
governments in New Zealand. As with the other sectors in the economy,
government sector economic policies and decisions are made in response to
current and forecasted economic conditions.
Government economic policies can also influence the performance of an
economy, and are sometimes credited with, or blamed for, positive or
negative economic conditions.
1.2.5 International sector
The international sector includes all offshore participants in the economy.
Both Australia’s and New Zealand’s domestic economies are often directly
affected by the performance of the international sector (particularly that of
the United States, Asia and China). Political and social influences also affect
the economy. One clear example is the World Trade Centre disaster which
affected both the international and domestic economies. Other examples
include other terrorist activities (for example, the bombings in Bali and
London) and the avian flu outbreaks in Asia and Europe.
1.3 Economic performance
All aspects of an economy are interrelated. When measuring economic
performance, a number of factors are considered. The performance of one or
more of these factors also influences the strength or weakness of other
factors. The insurance industry forms one part of the economy, and you need
to be aware of how each economic factor may influence the insurance
industry.
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 35
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1.3.1 Interest rates
Interest rates represent the price of money. Financial institutions pay you for
money deposited and charge you for money borrowed.
Movements in interest rates can affect the various financial markets in
different ways. The official interest rate is set by the Reserve Bank. Any
increase or decrease in the official interest rate will flow on to the market
rates charged and paid by financial institutions.
For example, when interest rates go up, savers are more likely to invest their
money in interest-bearing accounts. At the same time, borrowers may either
borrow less money or not borrow at all if interest rates are too high.
1.3.2 Exchange rates
Exchange rates are similar to interest rates in that they represent the price of
currency. The exchange rate is the price of one country’s currency in terms of
another.
Imagine you wanted to go on an overseas holiday to the United States and
you needed to buy $1,000 US dollars for spending money. If the exchange rate
was 12.5 cents, that is, one RMB was worth 12.5 US cents you would need
approximately RMB8,000. However, if the exchange rate fell to 10 cents then
you would need RMB10,000.
From this simple example, you should also be able to see that the exchange
rate affects the prices that foreigners have to pay for goods and services
produced in another country. For example:
• When the price of the RMB is high, overseas investors will need to pay
more money to invest in these economies.
• When the price of the RMB is low, overseas investors will pay a lower
price to invest in these economies.
Exchange rates are determined by a number of factors, including the rate of
domestic interest rates relative to interest rates overseas.
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 37
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1.3.3 Demand and supply of commodities
The price of a commodity determines the demand for, and supply of, that
commodity. Sellers are less likely to increase the supply of a product that has
a lower price; so you would expect that, as the price of a commodity goes
down, so does the supply of that commodity. The market price of a
commodity is defined as the point at which demand for a commodity equals
the supply of that commodity.
Economists also hold that when the demand for a commodity is greater than
the supply of that commodity, the price of the commodity increases.
For example, when there are several bidders at a house auction, the selling
price is more likely to be higher. An increase in the average selling price of
houses may lead to more sellers in the property market. When the supply of
houses is greater than the demand for houses, the price for houses is likely to
go down.
The demand for a commodity is also influenced by consumer confidence. For
example, when consumers are very confident about future economic growth,
they will continue to buy commodities even when the price of those
commodities is increasing. On other occasions, even a significant reduction
in prices may not increase the demand for a commodity. For example,
consumer confidence in air travel was reduced by the World Trade Centre
disaster and even heavy airfare discounting at the time could not reverse the
trend.
1.3.4 Inflation/deflation
Inflation is the rate at which the prices of goods and services in a particular
economy increase. When the rate of price increases for a specific group of
commodities is faster than the rate of increases in incomes to pay for those
commodities, the inflation rate also increases.
Inflation is also affected by the rise in price of goods and services, or
Consumer Price Index (CPI), particularly when too much money chases too
few goods on the market. Moderate inflation is a result of economic growth. A
persistent increase in the level of consumer prices or a persistent decline in
the purchasing power of money is caused by an increase in available
currency and credit beyond the proportion of available goods and services.
AUSTRALIAN AND NEW ZEALAND INSTITUTE OF INSURANCE AND FINANCE 39
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It is important to be aware of both the inflation rate and the expected
inflation rate as these affect the level of funds consumers think they can
spend both now and in the future.
When the level of income earned by consumers does not keep up with the
inflation rate, consumers effectively have less money to spend. If consumers
believe that the inflation rate (but not their incomes) is going to rise in the
future, they expect to pay more money for commodities with the same level
of income to fund those price increases.
In this climate the government may adopt economic policies that work
toward improving inflationary expectations and avoiding an inflationary
spiral; for example, adjusting the official interest rate.
Deflation is the opposite of inflation; the price of commodities goes down and
the level of income remains the same. It usually indicates that people lack the
confidence to make purchases because the economy is not performing well.
Deflation can harm the economy, as it can induce its own distortions, such as
people putting off spending because they expect prices to fall. If deflation
continues, it can cause a rapid economic slow-down.
1.3.5 Economic cycles
Throughout history, economies have gone through alternating periods of
boom and recession. This pattern is called the economic cycle.
During an economic cycle, an economy may be experiencing growth (that is,
booming) or it may be in recession, or somewhere in between. Governments
attempt to keep the economy on a steady course of managed growth. These
economic cycles affect the borrowing and investing behaviour of customers
and have an effect on financial markets. For example:
• When the economy is booming, retail and wholesale consumers are more
likely to borrow, spend and invest.
• When the economy is in recession, retail and wholesale consumers are
less likely to feel confident enough to borrow, spend and invest large
amounts of money.
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Self-help question 1.1
1 How might high interest rates affect a customer’s decision to take out a
loan to buy a new car?
2 How might the exchange rate affect a customer’s choice of:
• a holiday destination?
• buying retail goods?
3 Describe the likely impact on retail and wholesale consumer confidence
on spending, saving and borrowing:
• when the economy is in recession
• when the economy is booming.
An answer to this self-help question is provided at the end of this section.
1.4 Government economic policies
The government is charged with ‘looking after’ the economy. It can exercise
control over the economy through a range of specific economic policies.
These may be macro-economic policies (affecting the entire economy) or
micro-economic policies (affecting a section of the economy).
1.4.1 Monetary policy
Monetary policy is concerned with the supply of money in an economy,
which influences the level of interest rates. Monetary policy is an example of
a macro-economic policy. Through the setting of official interest rates by the
central bank (Reserve Bank, which is independent from the government), the
government is able to influence the availability of money in the economy.
For example by:
• loosening monetary policy—e.g. by reducing interest rates, the government
can increase the availability of money
• tightening monetary policy—e.g. by increasing interest rates, the
government can decrease the availability of money.
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Activity—Management of monetary policy
You can find more information about the management of monetary policy in
Australia by accessing www.rba.gov.au.
You can find more information about the management of monetary policy in
New Zealand by accessing www.rbnz.govt.nz/faqs
If you work outside Australia or New Zealand, investigate how monetary
policy functions in your country
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1.4.2 Fiscal policy
Fiscal policy is an example of macro-economic government policy. It is the
government’s policy on how much tax it needs to collect and how much
money it needs to spend.
The government exercises its fiscal policy through the budget—balanced,
deficit or surplus. The government’s fiscal policy is influenced by the
performance of other factors in the economy.
For example, when the unemployment rate is low, taxation receipts increase,
providing the government with the opportunity to either achieve a balanced
or surplus budget by not increasing spending. Alternatively, the government
may choose to spend the additional money (taxation receipts) on
infrastructure, education, defence, health, etc.
1.4.3 Employment policy
Both the Australian and New Zealand governments target a certain level of
employment. This is generally measured inversely; that is, the lower the
unemployment level, the better.
To encourage business to increase the level of employment, the government
may:
• create economic conditions—e.g. lower interest rates, lower corporate tax
rates—that will increase business confidence
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• pay a portion of the salary of a person who was previously unemployed,
thereby encouraging business to use the unemployment pool rather than
employees from other businesses.
1.4.4 Industry policy
Industry policy is an example of a micro-economic policy, where the
government focuses on a specific participant in the economy.
This could include decisions to provide assistance to particular industries; for
example, drought relief packages for farmers or assistance to the housing
industry.
1.4.5 Tariff policy
Tariff policy is a form of ‘import tax’ and is charged to imported goods, which
are in competition with the same goods made domestically. It provides tariff
protection for domestic industries and is linked with industry policy.
The Australian government is currently phasing out tariff protection,
meaning domestic industries are compelled to become more efficient and
compete with international competitors.
1.4.6 International policy
International policy is concerned with exchange rates, which we discussed
earlier. Both Australia and New Zealand have a floating exchange rate,
meaning that the price of other currencies is set by market forces in a similar
way that share prices are set on the stock market.
For example, if there are plenty of buyers for a share, the price will increase.
If there are plenty of buyers of Australian or New Zealand dollars, the price,
relative to other currencies, will increase.
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Self-help question 1.2
Match the following government decisions with the economic policy from
which it has emerged.
Government Decision Policy
1 Allocation of assistance funds to an airline company a Tariff Policy
2 Introduction of ‘work for unemployment benefit b International Policy
scheme’
3 Purchase of RMB by the Reserve Bank c Industry Policy
4 Reduction of official interest rates d Employment Policy
5 Reduction of import tariffs on textiles clothing e Monetary Policy
and footwear
An answer to this self-help question is provided at the end of this section.
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Self-help question 1.3
The government decides to increase all aged pensions by 15% and abolish the
means test (a limit placed on payments according to the person’s other
income) for aged pensions.
1 Is this a monetary or fiscal policy decision?
2 What effect might this have on the economy?
An answer to this self-help question is provided at the end of this section.
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客户服务 金融市场与保险市场
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思考题 1.2
将下列政府决策与其所出自的经济政策匹配起来
政府决策 政策
1 向某一航空公司拨发援助资金 a 关税政策
2 采纳“以劳动换取失业救济金”的计划 b
货币政策
3 储备银行购买人民币 c 行业政策
4 降低官方利率 d 就业政策
5 降低纺织服装和鞋类的进口关税 e
国际政策
本章后面附有本思考题的参考答案。
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思考题 1.3
政府决定将所有老年人的退休抚恤金提高15%,并废除针对老年人退休
抚恤金而设的经济情况测试(经济情况测试是根据个人的其他收入而对
退休抚恤金的给付所规定的一项限制条件)。
1 这是货币政策决策还是财政政策决策?
2 这项决策可能会对经济产生什么影响?
本章后面附有本思考题的参考答案。
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1.5 Financial markets
Financial markets are similar to other types of markets in that products and
services are created, bought, sold or transferred. The type of goods and
services being sold determines the type of market. The following table lists
some of the financial markets together with their particular products or asset
classes.
Financial market Financial products/asset class
Insurance market insurance products
Stock market shares
Money market cash
Foreign exchange market currency—e.g. Australian or New Zealand dollars or
Chinese RMB
The performance of any one of these markets affects the rest of the markets—
for example, if the stock market drops, investors may move their money from
shares into property or fixed interest (banks).
1.5.1 Analysing financial markets
When analysing financial markets, a number of factors need to be taken into
account, including the primary and secondary financial markets and the key
players in the financial market. Let’s look at each of these now.
The primary financial market
The primary financial market is where new financial products are created; for
example, new share listings. Key players are the issuers (the companies
issuing the new products) and the investors.
In a primary market, financial products can only be bought and sold once.
After the original owner issues or sells a financial product to the second
owner, that product will be traded in the secondary market.
Typically, an issue on the primary market; for example, an Initial Public Offer
or IPO is accompanied by a prospectus or product disclosure statement (a
document outlining the risks and likely results of the offer). A primary market
transaction should result in an increase in the debt or equity recorded on the
balance sheet of the organisation (or government) involved.
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The secondary financial market
The secondary financial market is where existing financial products are
bought and sold; for example, buying existing shares on the share market or
transferring cash on the short term money market. There is no affect on the
balance sheet of the organisation (or government) whose instruments (debt
or equity) are being traded—transactions on the secondary market involve
third parties; that is, not the organisation itself (unless the organisation is
buying shares in itself).
The key players in the secondary market are the financial intermediaries; for
example, the buyers or investors and the borrowers.
There is virtually no limit to the number of times that an existing financial
product can be bought or sold on the secondary market.
Financial products and services
A range of products and services are available on the financial market.
Financial products are made up of investments (financial assets) and loans
(financial obligations). Financial services are provided by organisations and
individuals are referred to as financial intermediaries.
The following table provides examples of products and services available on
the financial market.
Financial products Financial services
Cash Lending
Deposit taking accounts Taking deposits
Property Buying and selling financial products
Equities Financial advising
Insurance products
Futures/derivatives
Key players in the financial market
The key players in the financial markets are the organisations and
individuals who participate in creating, buying and selling financial products
and services. These players include:
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Financial intermediaries
Financial intermediaries are the service providers for financial markets.
These include banks, stockbrokers, insurance companies and insurance
intermediaries.
An insurer is a type of financial intermediary because it collects money (in
the form of premiums) from insureds and provides money to insureds by
paying claims. (However, insurers are, strictly speaking, product issuers not
intermediaries—the policy being the financial product.)
Insurance intermediaries are also financial intermediaries as they collect
money from the insureds on the insurer’s behalf and forward it to the insurer.
The following diagram illustrates the role the insurance intermediary plays in
the insurance market.
Financial intermediaries need to be informed about current and forecasted
data, information and issues which may affect the products and/or services
they provide, and the clients they serve. Current or forecasted data,
information and issues may be based on domestic or international:
• economic conditions—e.g. high/low inflation rate
• political stability—e.g. elections, coups
• social issues—e.g. welfare, employment.
Issuers
Issuers are the participants who create new financial products such as shares
to be listed on a trading market for the first time or new insurance products.
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Customers
Customers are the savers and borrowers who pay for financial products and
services provided in the market. For example:
• when insurance customers pay premiums for their insurance policies they
are also paying for a financial product
• when insurance customers pay administration fees to insurance
companies for their policies, they are paying for a service provided by
their insurer.
Lenders and investors
Lenders and investors make money available by selling it on the financial
market. Lenders and investors also pay for the services of financial
intermediaries who reinvest their money.
Note: Credit facilities and loans are not financial products.
Self-help question 1.4
1 Economic environmental factors influence the way participants in the
economy spend, save, invest and borrow money.nTrue/False?
2 Interest rates and currency exchange rates directly affect the economy.
True/False?
3 Government monetary and fiscal policies do not influence financial
markets.nTrue/False?
4 Existing financial products are sold on the primary financial market. True/
False?
5 If you work in an insurance brokerage or agency, you would be working
for a financial intermediary.nTrue/False?
An answer to this self-help question is provided at the end of this section.
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1.6 The insurance market
The insurance market forms part of the financial market. The major
participants in the insurance market include:
• insurers
• insurance intermediaries (brokers, authorised representatives and
employees)
• customers.
1.6.1 Insurers
Insurers are issuers of financial products in the form of insurance policies,
and are responsible for providing cover to policyholders who have purchased
them. They are bound by various Acts and Regulations in the way those
policies are issued and maintained. They often use insurance intermediaries
who sell the policies on their behalf.
1.6.2 Insurance intermediaries
Insurance intermediaries primarily arrange insurance products on behalf of
either the insurer or the customer, depending upon their contractual
arrangements and, in Australia, whether they operate under their own license
or as an authorised representative of an insurer. They can be either brokers or
authorised representatives.
Brokers
In Australia, a broker is an insurance intermediary who acts on behalf of a
customer in arranging their insurance needs and must do so under its own
licence. They are responsible for ensuring that the financial needs of the
customer have been assessed and matched to the appropriate insurance
products that are available in the market.
In Australia, as Australian Financial Services (AFS) licensees, they have been
licensed by ASIC to carry out these activities and, therefore, insurers are not
responsible for any of their actions. In certain circumstances though, such as
binders, they can act on behalf of the insurer rather than the customer in
arranging insurance covers under that facility.
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Underwriting agencies
Underwriting agencies act on behalf of insurance companies providing
underwriting management and claims administration. The underwriting
agencies do not assume any insurance risk themselves and the revenues
generated are based entirely on management fees and profit commissions.
These subsidiaries are in a position to direct and control business that they
produce and are often used to underwrite specialist classes of insurance such
as marine and motor.
Authorised representatives—Australia
Authorised representatives are insurance intermediaries who act on behalf of
the insurer when arranging insurance cover for customers. They are
responsible for ensuring that the financial needs of the customer are assessed
and met when arranging insurance products with a particular insurer that
they represent. However, as they are acting as an authorised representative of
the insurer, the insurer will be liable for any breach of the Corporations Act
by the authorised representative.
As they act on behalf of particular insurers, those insurers are responsible for
providing the necessary training required as well as being responsible for
their actions as authorised representatives (unless the authorised
representative specifically tells the client it is acting outside the terms of its
authority from the insurer).
1.6.3 General insurance classes and products
General insurance products are created, sold and transferred in the insurance
market. There are several classes of general insurance, including:
• personal and domestic lines
• commercial lines
• engineering
• liability
• statutory classes.
The following table lists examples of products for each of these classes of
insurance.
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Class Example of product
Personal and Home buildings
domestic lines Home contents
of insurance Private motor vehicle
Personal accident and sickness
Travel
Consumer credit1
Personal liability cover—provided as part of home buildings and
home contents policies
Personal Effects
Domestic worker’s compensation (covered by the ACC in New
Zealand)
Mortgage protection
Strata title insurance (referred to as ‘body corporates’ in New
Zealand)
Pleasure craft insurance
Commercial Fire and perils
lines of Industrial Special Risks (ISR) (also termed ‘material damage’ or
insurance ‘business assets’ in New Zealand)
Theft
Business interruption
Marine Hull
Marine Cargo
Fidelity (protection from embezzlement by employees)
Farm package
Pluvius (protection against risk of rain interrupting an event)
Money
Electronic equipment
Crop
Commercial motor vehicle
Professional liability
Aviation
Engineering Contract works
Construction works for properties during construction/alteration
Engineering
Machinery breakdown (known as machinery breakdown business
interruption in NZ)
Liability Professional indemnity (for doctors, lawyers and others)
Products liability
Public liability, including excess loss covers
Directors’ and officers’ liability
Construction liability
Engineering liability
Statutory classes Workers’ compensation (in New Zealand, the government oversees
the Accident Compensation insurance and this class of cover is not
issued by insurers)
Third party motor vehicle (not applicable in New Zealand)
Earthquake (Natural Disaster) Insurance (New Zealand only—In NZ
the government provides earthquake insurance for residential
properties and home contents)
1 In Australia, these are called ‘prescribed classes’ as the standard cover applicable to each is prescribedunder the Insurance Contracts Act 1984 (Cwlth) to protect consumers.
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1.6.4 Standard cover
Australia
Under the regulations prescribed in the Insurance Contracts Act, six types of
insurance are named as prescribed contracts. These classes are:
• motor vehicle
• home buildings
• home contents
• personal accident and sickness
• consumer credit
• travel.
Insurers are required to offer a minimum amount of cover for prescribed
classes of insurance. While insurers are free to offer more than the minimum
amount of cover, they cannot offer less than the minimum amount of cover
unless they inform the customer of this fact before the insurance contract is
entered into.
For example, flood cover is part of standard cover for home buildings and
home contents insurance. Insurers are often reluctant to offer flood cover so
they make sure their policy documents clearly point out that flood is not to
be covered.
If the insurer fails to notify the customer that flood is not covered (that is, by
failing to provide a policy) then standard cover applies and flood would be
included. This also applies to insurance intermediaries working under a
binder, where intermediaries are exposing themselves to action by the
insurer to recover claims paid.
The purpose of minimum amounts of cover is to protect consumers who
move their insurances from one insurer to another. Insurers have similarly-
described products; however, the cover offered may differ widely. Minimum
amounts of cover create a measure of consistency and certainty.
You can find more information on standard wordings by reading the extract
from the Insurance Contracts Act in the Appendix located at the end of this
module.
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New Zealand
In New Zealand, the Insurance Law Reform Act 1977, Insurance Law Reform Act
1985, Fair Trading Act 1986 and the Consumer Guarantee Act 1993 contain
protective provisions that apply to personal insurances.
Activity—Standard cover (Australia)
1 Obtain a copy of a home building policy. Compare it with the standard
cover found in the extract of regulations of the Insurance Contracts Act
1984 for home buildings, located in the appendix at the end of this
module. Identify where the policy provides:
• less than standard cover
• more than standard cover.
2 Ascertain whether your organisation offers insurance policies with less
than the standard cover and, if so, examine the ways in which your
organisation advises customers that less than standard cover will be
offered.
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Self-help question 1.5 (New Zealand)
Obtain a copy of the Consumer Guarantees Act 1993. Identify the four service
guarantees that insurers or representatives of an insurer must comply with.
An answer to this self-help question is provided at the end of this section.
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1.6.5 Accident compensation—New Zealand
Unlike Australia, New Zealand does not have standard policy wordings.
Therefore, the requirements we have just discussed do not fall so directly on
insurers. Another significant difference in the insurance products offered in
New Zealand is accident compensation legislation and the work of the
Accident Compensation Corporation (ACC).
Set up by legislation in 1974, the Accident Compensation Corporation is
managed by a New Zealand government appointed organisation. The scheme
was created to ensure that anyone who was involved in an accident would be
compensated and/or have medical costs paid whether the accident happened
at work or not, and irrespective of fault.
The level of compensation payable is related to the injured person’s income.
In return for providing such accident cover, injured persons do not have the
right to sue for personal injury, other than for exemplary damages. Exemplary
damages are awarded to punish the wrong doer rather than to compensate the
injured persons (excepting the period from 1 July 1999 to 30 June 2000).
During this period, the ACC underwent radical change and insurance
companies were able to sell and underwrite accident compensation
insurance.
The introduction of the ACC scheme has had a major impact on liability
insurances and personal accident and income protection policies in New
Zealand, both in terms of demand and underwriting.
Activity—Standard cover (New Zealand)
1 Read the standard cover wording extracted from the Insurance Contracts
Act Regulation located in the appendix at the end of this module.
Compare it to one of your organisation’s standard home buildings policies
and identify any differences.
2 Access the ACC website at: www.acc.co.nz.
• Identify and list what the ACC covers.
• What happens to those who were injured during the period 1 July
1999 and 30 June 2000?
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Self-help question 1.6
Scenario
Lim lives on a forest block an hour’s drive from the city. He rings Zing
Insurance to apply for home buildings insurance. The application is
completed over the telephone and Lim sends off his premium payment;
however, he does not receive a copy of the policy.
Some months later there is a fierce storm and two trees are blown over,
causing extensive damage to Lim’s house. When he lodges his claim, Zing
rejects it because its policy excludes cover for damage from fallen trees in
heavily forested areas, such as where Lim lives.
Question
Is Zing Insurance justified in rejecting Lim’s claim? Explain your answer.
An answer to this self-help question is provided at the end of this section.
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1.6.6 Conditions and exclusions
All insurance products have conditions and exclusions attached. These are set
out in the policy document or contract.
Conditions
The conditions section of a policy sets out certain things that policyholders
must do, or not do, if they are to make a successful claim. Typical conditions
for a home and contents policy include:
• Customers must pay premiums by the due date.
• If customers’ homes are unoccupied for more than 60 consecutive days,
they must notify their insurance company. The insurer may be able to
deny a claim in respect of damage to the customer’s home during that
period (unless they meet certain other requirements) if they are not
advised about the unoccupied home.
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Exclusions
The exclusions section of a policy sets out those things that the policy does
not cover. Typical exclusions for a home and contents policy include damage
from:
• wear and tear, gradual deterioration or fading
• failure to keep the property in good condition.
Your customers need to be fully and clearly informed of the conditions and
exclusions attached to their insurance risk products, before the policy is
entered into.
Under New Zealand’s Insurance Law Reform Act 1977 (section 11), some types
of exclusion can only be used by the insurer to avoid liability if the excluded
circumstances have contributed to the loss incurred. This is covered in more
detail in the module FSI406 New Zealand Insurance Law and Regulation. Similar
restrictions apply under Australia’s Insurance Contracts Act.
Activity—Conditions and exclusions
1 Read the policy documents for all insurance products offered by your
organisation. Familiarise yourself with the conditions and exclusions
attached to these products.
• Which parts of the policy wording would you point out to the
customer as most important for them to understand?
2 Compare the policy wordings of three similar general insurance products
from different insurers.
• What key differences do you observe?
• Which policy offers the customer the most comprehensive cover?
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1.6.7 Pricing insurance products
Customers pay a price (the premium) for insurance coverage. The amount of
premium they pay depends on the risk to the insurer that a claim will be
made by the insured. For this reason, high levels of risk attract high
premiums. Similarly, if there is a risk of a substantial claim or frequent small
claims, premiums may be high.
To determine the pricing of an insurance risk product, the insurer will
consider a number of factors. For example, if a customer wishes to take out
home and contents insurance, factors that will determine the price include:
• claims history—i.e. the number of times the insured has made a claim
• location of the house
• security of the house against theft—e.g. whether alarms, window locks
and security doors are fitted.
Some risks are simply too great for an insurer to accept, no matter how high
the premium. For example, a young male driver with a history of driving
offences who wants to insure a high-powered late model car may not find an
insurer to cover him.
Pricing new products
One of the biggest problems faced by insurers when developing a new
product is the issue of pricing. There will often be little or no historic data
upon which to base claims projections and administration costs. At times,
some insight can be gleaned from products that are similar to the one under
development.
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Self-help question 1.7
Scenario
Wayne and Thuy Jiang live in a small country town. They come to you for an
insurance policy to cover their take-away food shop and their house, which
is attached to the shop. After consulting the Jiang’s, you find out the following
information.
• They have had one claim for some ‘minor’ fire damage in the last year.
• There are locks on the doors of both the shop and the house and an alarm
system in the shop.
• There is a fire extinguisher in the shop.
• The shop contains deep fryers, a hot plate and grill, a microwave oven and
a stove.
Question
What further details would you need about this information to help make a
more accurate decision about pricing the Jiang’s policy?
An answer to this self-help question is provided at the end of this section.
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1.6.8 Selling insurance products
Once you have developed your products, you need to distribute them to as
many people as possible. As the insurance market has become more complex
over time, so have the ways of distributing insurance products. We’ll now
look at the main methods of distribution.
Distribution channels
Customers can obtain insurance through a number of different sources, for
example:
• direct from insurers—for example, through call centres or via the Internet
• through insurance intermediaries.
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Selling direct
Call centres are increasingly popular with customers buying insurance. There
are a number of advantages for an insurer in establishing a call centre,
including:
• The insurer may be able to achieve savings in administration costs by
centralising all customer service functions into one specialised unit. The
unit can be located anywhere and offer up to 24 hour access via toll-free
phone numbers. Whilst no commissions are paid on business written
through a call centre, these savings are offset to some extent by
advertising and other call centre costs.
• The insurer retains direct control over the business being written. When
insurance intermediaries are used to distribute products, a measure of
control is lost.
• There are many customers who want to deal direct with insurers. Call
centres or the internet respond to this need.
If you are selling insurance in a call centre, you are acting as a representative
of the insurer (your organisation), which will be held liable for the financial
services that you provide.
Selling through insurance intermediaries
Some customers prefer to receive advice from competent insurance
salespersons; an insurance intermediary. In Australia, the Corporations Act
2001 (Cwlth) defines authorised representatives and brokers collectively as
insurance intermediaries. However, there remains a clear legal distinction
between the obligations of an authorised representative and the obligations
of a broker. In general, an authorised representative works for, represents and
is accountable to, the insurer; whereas, a broker works for, represents and is
accountable to, the customer.
To help you to understand this distinction, we will refer to authorised
representatives and brokers when a distinction is needed and to insurance
intermediaries when no distinction is needed.
In Australia, the Corporations Act:
• makes insurers fully responsible for the actions of their agents
• requires insurance brokers to take out professional indemnity insurance
to cover their liability to their retail customers for negligence.
In New Zealand, both the Insurance Law Reform Act 1977 and the Insurance
Intermediaries Act 1994 govern the way in which insurance intermediaries
must conduct themselves professionally.
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Note: An exception to the legal relationship referred to above is where a
broker is working for an insurer under a ‘binder’ agreement; in this case, the
broker represents the insurer. As you have not been introduced to binder
agreements as yet, the following brief definition is included for your
information.
Binder agreement
Brokers may enter into a binding authority with an insurer whereby the
broker is given an authority by the insurer to enter into contracts of
insurance on the insurer’s behalf.
Under the agreed terms of a binder agreement it is usual for the broker to
arrange cover up to a pre-determined limit, to determine premiums within a
pre-agreed range, and to issue and sign certificates of insurance and policies
on behalf of the insurer. The broker may also have the authority to manage
and settle claims up to a pre-determined limit.
Insurance Contracts Act implications—Australia
A broker acting under a binder becomes an agent of the insurer, rather than of
the insured, in regard to the giving of notices, statements and any other
document or information to the insured.
Corporations Act implications—Australia
In general terms, Section 916E provides that the broker is taken to act on
behalf of the insurer and not the insured when acting under a binder.
In New Zealand, this situation is modified by the Insurance Law Reform Act
1977. In this Act, a ‘representative of the insurer’ is defined as any person:
…entitled to receive from the insurer commission or other valuable
consideration in consideration for…arranging, negotiating, soliciting, or
procuring the contract of insurance between a person other than himself and
such insurer.
This means that a broker is the agent of the insurer while arranging a contract
of insurance. If the insured discloses details to the broker while completing a
proposal (and the broker fails to pass this information to the insurer) then the
insurer is deemed to know those details and it cannot avoid paying the claim
on the grounds that the insured did not disclose the information. Having paid
the claim, the insurer can recover its cost from the broker on the grounds that
the broker was negligent for not having passed on material facts to them. (A
binder arrangement generally authorises the relevant broker to issue policies
on behalf of the insurer, so the broker will not ‘pass information on’ to an
insurer. It is more likely that the broker will not follow the underwriting
guidelines of, and will therefore be in breach of, the binder agreement.)
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At any other time, the broker is the agent of the insured; this provision only
applies when a policy is first being negotiated.
Case study—Mrs Low
Mrs Low took out insurance on her house and contents through an
authorised representative/broker. The authorised representative/broker failed
to respond to all of Mrs Low’s coverage requests and did not include her
jewellery in the policy.
When her house was broken into and her valuables stolen, Mrs Low’s claim
for the stolen jewellery was rejected.
○ ○ ○ ○ ○ ○ ○
In this case, the insurer was liable for the negligence of the authorised
representative and was required to meet Mrs Low’s claim. If, on the other
hand, Mrs Low had obtained her policy through an insurance broker in
Australia, the position would be different.
In Australia, the broker would be responsible for failing to respond to Mrs
Low’s coverage requests, and the insurer could decline the claim on the basis
that it did not have the information when making up the policy. Mrs Low
would then have to sue the broker for negligence, and the broker would
either pay the claim personally or make a claim against their professional
negligence insurance.
In New Zealand, the insurer would have to honour the claim and then the
insurer would be able to sue the broker for professional negligence.
Insurance intermediary commissions and fees
Both authorised representatives and brokers receive remuneration from
insurers for the business they introduce. This remuneration is in the form of a
commission based on a percentage of premiums paid by customers. In addition
to commission received from insurers, many authorised representatives and
brokers also charge their customers a fee for services provided.
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The practice of charging fees was brought about by historically low premiums
being charged by insurers. The lower the premium charged by an insurer, the
lower the commission earnings of the intermediary. Rather than reduce
service levels, many brokers opted to supplement their commission earnings
by fees.
A further rationale for fees is that brokers, at times, request insurers to quote
premiums net of any commission. This has the effect of lowering the
premium payable by the customer, as there is no commission element. The
broker simply receives a fee from the customer for service provided, which
appeals to some customers.
The law requires authorised representatives and brokers to always disclose
their fees and commissions separately from the premium payable to insurers.
1.6.9 Every sale and claim is important
It is important to understand that the day-to-day underwriting and claims
decisions you make have a cascading effect on the results of your
organisation. Thousands of seemingly unconnected decisions are being made
that, in total, can have serious consequences for an organisation.
Underwriting
Underwriting decisions can have a significant impact on the organisation’s
overall performance. Two key areas of focus are decisions relating to:
• accepting a risk
• setting a price (premium) for the risk.
Acceptance guidelines
All insurers have acceptance rules and it is essential that you follow your
organisation’s guidelines. If insurers make regular exceptions to the rules, the
quality of their portfolio will deteriorate, with the inevitable result of an
underwriting loss. Any underwriting loss has a cascading effect throughout
the organisation.
For example, an underwriting loss will most likely also have an impact on the
organisation’s reinsurers. This will, in turn, result in a weakened position for
setting terms during the reinsurance renewal negotiations the following year,
further adding to the organisation’s problems.
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Underwriting losses inevitably mean price increases, which may make the
insurer less competitive. Poor underwriting decisions have a negative effect
on an insurer’s results beyond one year and may have serious consequences
for several years.
Pricing decisions
An insurer may make a calculation error when setting a premium and under-
charge the customer. In itself, this may not have much of an effect on the
organisation’s profits. However, there is the danger that calculation errors
like this could accumulate over time and have a negative impact on the loss
ratio for a class of business. Over-charging will also have a negative effect; for
example, business could be lost because customers take their business to a
more reasonably priced insurer.
Claims
It is the same situation with claims. Customers do not pay a premium to cover
every conceivable risk, and policies do contain exclusions and sub-limits that
limit what people can claim for. If insurers make a decision to pay a claim on
a more generous basis than set out in the policy, this could have a negative
impact on portfolio performance.
As with premium under-charging, exceptions to the rules add up and will
accumulate to the detriment of the organisation’s results. Likewise, when
claims are settled for inappropriately low levels, the consequential effects
may result in loss of goodwill and business.
Inappropriate pricing, claims and underwriting decisions all eventually
influence the organisation’s annual results. Returns to shareholders, external
perceptions of the worth and substance of the insurer, relationships with
reinsurers, the perceptions of financial journalists and brokers, the morale of
staff and representatives, will all eventually be adversely affected by these
seemingly unconnected day-to-day decisions. It is important, therefore, to
always keep the big picture in mind.
1.6.10 Developing new insurance products
New insurance products are developed by insurers in response to identified
needs or business opportunities. The impetus for new product development
has also come from those involved in marketing insurance; for example,
banks and insurance intermediaries. The following provide some examples of
product development:
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• There was the development of the no-sum-insured home buildings policy
introduced in the mid 1970s by local insurers. Under-insurance was and
is a major problem with this portfolio. The insurer identified that
customers (in most cases) knew the approximate size of their home;
however, seldom had an idea of how much it would cost to replace it. A
new form of policy was developed that insured homes by size rather than
by the traditional sum insured approach. This type of policy is common to
New Zealand but not widely used in Australia.
• The growth in overseas travel, coupled with the horrendous medical
expenses suffered by unfortunate sick or injured travellers in North
America, gave rise to much wider travel insurance.
• Product tampering by persons attempting to extort money from businesses
gave rise to special insurance to cover the costs organisations incur in
withdrawing their products from supermarket shelves following an
incident or suspected incident of tampering.
• The growth in sophisticated computer viruses and the criminal activities
of computer hackers has resulted in insurers developing special covers to
protect businesses from losses caused by corruption of their data, or by
unauthorised use of computer data.
• The creation of what is called e-commerce similarly influences special
policies to cover the newly identified financial and liability risks that
have emerged.
Activity—New products
1 What new general insurance products has your organisation developed in
the last few years?
2 What commercial or consumer needs are these new products responding
to?
3 Are there any unmet business or consumer insurance needs that you can
identify? What kinds of products would meet these needs?
○ ○ ○ ○ ○ ○ ○
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1.7 Taxation and insurance (Australia)
General insurance products are subject to taxation at both a federal and state
government level. At a state level, there is the Fire Services Levy and stamp
duty. Let’s look at each of these in more detail.
1.7.1 Fire Services Levy
The Fire Services Levy is an additional charge to the policyholder where the
policy insures the customer for fire. It is calculated as a percentage rate
applied to the base premium charged. The purpose of the Fire Services Levy is
to fund the cost of providing fire services within the state or territory.
Not all states and territories fund their fire services through a levy on
insurance policies; for example, some levies are collected with property rates
and are collected by local governments in some parts of Australia.
Where the levy is charged on insurance, the rate charged differs between
states and territories. The rate may also differ between metropolitan and
country fire services, and between domestic risks and commercial risks.
1.7.2 Stamp duty
Depending on the type of insurance policy, stamp duty is charged as either:
• a percentage of the premium
• a percentage of the premium, plus the Fire Services Levy and GST
• a flat amount.
Rates for stamp duty vary between the different states and territories. It is
commonly charged at around eight to ten percent; however, it is as low as
three percent for certain types of insurance. You will need to check in your
state or territory to see what rate is charged.
1.7.3 Goods and services tax
At a federal level, there is a 10% Goods and Services Tax (GST). Insurance
premiums for Australian general insurance risk products include GST.
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When does GST apply?
GST is applied after the Fire Services Levy and does not include stamp duty
charges. Stamp duty is then applied to the total premium, plus the fire
services levy, plus the GST.
GST also applies to commissions and fees earned by insurance intermediaries.
How is GST paid?
When insurance intermediaries collect insurance premiums, they pass over
the money, including GST, to the insurer at regular intervals (usually
monthly). The insurer will then pay 10% of the value of the general
insurance premium (including the Fire Services Levy) to the Australian
Taxation Office (ATO).
The GST earned from commissions and fees is paid to the ATO by insurance
intermediaries when their Business Activity Statements (BAS) are submitted.
This money must be held in the intermediaries trust account until payment is
made to the ATO.
Note: GST is not payable on stamp duty; however, stamp duty is charged on
the GST. Health insurance and life insurance are exempt from GST.
Terrorism levy
There is also a charge which is included in the premium component for cover
against loss due to terrorism.
1.7.4 How is tax calculated?
To calculate tax on insurance, you will need to take the following steps.
1 Determine and apply a rate for a general insurance product (this will
generally include commission payable to the insurance intermediaries).
2 Add the Fire Services Levy (if applicable) calculated on 1 (above)
3 Add GST to 1 + 2 (above)
4 Apply stamp duty to 1 + 2 + 3 (above).
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Example of a premium calculation
Using the formula we have provided, let’s calculate home and contents
insurance, where:
• the premium is RMB9,000 (this includes the insurance intermediary’s
commission and applicable GST)
• local stamp duty is 12%
• the local Fire Service Levy is 1%
The total cost is:
premium RMB9,000
plus the fire services levy (1%) RMB90
sub total RMB9,090
plus GST (10%) RMB909
sub total RMB9,999
plus stamp duty (12%) RMB1,120
Total cost RMB11,119
Self-help question 1.8
Use the above formula to calculate the total cost for building and contents
insurance for Fantastic Car Repairs, where:
• the insurance premium is RMB13,800 (including the insurance
intermediary’s commission and applicable GST)
• local stamp duty is 8%
• the local Fire Services Levy is 1.5%
An answer to this self-help question is provided at the end of this section.
○ ○ ○ ○ ○ ○ ○
1.8 Taxation and insurance (New Zealand)
New Zealand has a Fire Services Levy and a Goods and Service Tax (GST) on
insurance. These taxes operate much as they do in Australia. New Zealand
also has levies on domestic insurance policies to finance earthquake cover.
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1.8.1 Fire Services Levy
The Fire Service Levy is charged on any policy of insurance that covers loss
by fire. The levy is used to fund the fire service, and rates are the same
throughout the country.
Fire services levies are charged on the following basis:
• Residential property
– 4 Jiao per RMB600 of insured replacement value (limit RMB 600,000;
maximum of RMB438 levy payable)
• Personal property
– 4 Jiao per RMB600 of insured replacement value (limit RMB 120,000;
maximum of RMB88 levy payable)
• Motor vehicles
– RMB35 flat rate per vehicle (under 3.5 tonnes gross laden weight); levy
on other vehicles is calculated as ‘other property’
• Other property (e.g. commercial property)
– 4 Jiao per RMB600 of insured value
Where the fire insurance contract provides for settlement of any claim
on a basis more favourable than its indemnity value, or where there is
no sum insured, the amount of insured value is the indemnity value of
the property. The indemnity value must be supported by a statutory
declaration or a valuation certificate.
The Insurance Council of New Zealand (ICNZ) argues that the levy should be
moved from insurance policies to local government rates, as happens in some
parts of Australia. The key reasons for the ICNZ wanting this change include
the following.
• It will spread the risk more fairly—currently, some people benefit from
the fire service without having paid the levy (as they are uninsured).
• It will improve fire prevention—charging businesses according to the risk
they represent will provide an incentive to improve their risk
management strategies.
• It will improve rural services—increasing revenue (and therefore fire
services) will be particularly beneficial to rural people who are currently
under-serviced.
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• It will improve the fire service—connecting the levy to rates will increase
the revenue and be used to improve the currently under-funded fire
service. This will counter the use of ‘first loss’ policies that also
legitimately reduce the amount of fire services levies paid on property
insurance.
1.8.2 Earthquake cover
Earthquake cover currently gives cover for homes and their contents
damaged in a natural disaster. It is built-in to general home and contents
insurance.
When a customer buys an insurance policy for their home or their personal
belongings, the insurer is required to charge a disaster insurance premium,
which it passes on to the Earthquake Commission (EQC). This provides the
customer with earthquake and natural disasters cover. The market cover
depends on the basis of the house or contents insurance and upper limits
arranged.
Each home is covered by the EQC to a maximum of:
• RMB600,000 (plus GST) for each dwelling (or self-contained part of a
dwelling, as defined by the EQC) on a replacement (new for old) basis
• RMB120,000 (plus GST) for household contents (on the same basis as the
underlying general insurance cover).
Most insurers provide ‘top-up cover’ to supplement the cover provided by the
EQC. This provides full replacement cover to equate with the fire and perils
cover for the buildings and/or contents.
How much does earthquake cover cost?
The cost for EQC earthquake cover is worked out at 3 Jiao (+ GST) for every
RMB600 insured. The most you can pay in a year (including GST) is RMB405.
This gives the maximum cover of RMB600,000 (+ GST) for the home and
RMB120,000 (+ GST) for personal belongings.
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Activity—Earthquake cover (New Zealand)
Access the EQC website at www.eqc.govt.nz/insure/whatis.htm and download
and read a copy of their publication: Householders’ Guide to EQCover.
○ ○ ○ ○ ○ ○ ○
1.8.3 GST
GST is charged at a rate of 12.5% on premiums charged, including the Fire
Service Levy, Earthquake Levy, and any premiums charged by the statutory
insurers. Some general insurance policies, such as travel insurance and some
marine insurance (typically cargo), are exempt or zero rated for GST.
When does GST apply?
GST is applied after the Fire Services Levy and the Earthquake Levy.
GST also applies to commissions and fees earned by insurance intermediaries.
How is GST paid?
When insurance intermediaries collect insurance premiums, they pass over
the money (including GST) to the insurer at regular intervals (usually
monthly). The insurer will then pay 12.5% of the value of the general
insurance premium (including the Fire Services Levy) to the Inland Revenue
Department (IRD).
GST earned from commissions and fees is paid to the IRD by insurance
intermediaries when their GST returns are submitted.
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How is tax calculated?
To calculate tax on insurance, you will need to take the following steps.
1 Determine and apply a rate for a general insurance product (this will
generally include commission payable to the insurance intermediaries).
2 Add the Fire Services Levy (if applicable).
3 Add the Earthquake levy (if applicable).
4 Add GST to 1 + 2 + 3.
Self-help question 1.9
List at least four key points to effectively summarise the content of this
section.
An answer to this self-help question is provided at the end of this section.
○ ○ ○ ○ ○ ○ ○
1.9 Answers to self-help questions
Self-help question 1.1
1 High interest rates might cause a customer to:
• buy a cheaper car, which needs a smaller loan
• use their savings to buy a cheap car and not take out a loan
• defer taking out the loan until interest rates fall
• not buy a car at all and invest their savings instead.
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(Remember, consumer and business confidence can affect responses to
interest rate increases and, sometimes, when consumer and business
confidence is very high, people may not curtail expenditure when interest
rates are high.)
2 The exchange rate may affect a customer’s choice of holiday in the
following ways.
• If the Australian or New Zealand dollar was low, the customer may
decide not to go overseas, but holiday at home.
• The customer may travel overseas but for a shorter period of time.
• The customer may postpone their overseas trip until the dollar is
stronger.
The exchange rate may affect a customer’s choice of buying goods in the
following ways.
• If the Australian or New Zealand dollar was low, the customer may
choose not to pay higher prices for imported goods, but choose the
locally made option.
• The customer may postpone spending on imported goods until the
dollar is stronger.
When the economy is in recession, retail and wholesale consumer
confidence is likely to be reduced. Consumers are less likely to borrow large
amounts of funds and will have less money to invest. This usually has a
negative impact on the financial markets. However, when the economy is
booming, retail and wholesale consumer confidence is usually increased.
Consumers are more likely to borrow and invest funds. This usually has a
positive impact on the financial markets.
Self-help question 1.2
1 c 2 d 3 4 5 a
Self-help question 1.3
1 This is a government fiscal policy decision.
2 This would make more money available to large numbers of consumers
that may result in increased savings and more spending.
b e
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Self-help question 1.4
1 True.
2 True.
3 False—Government monetary and fiscal policies have a major impact on
financial markets.
4 False—Existing financial products are sold on the secondary market.
5 True.
Self-help question 1.5 (New Zealand)
Four service guarantees that insurers and insurance representatives must
comply with include, the service must:
1 be performed with reasonable care and skill
2 result in fitness for a particular purpose
3 be completed within a reasonable time—if a time was not agreed to
beforehand
4 not cost more than a reasonable or going market price—if a price was not
agreed to beforehand.
Self-help question 1.6
ZING probably cannot reject the claim—unless the insurer makes it clear that
the standard wording has been changed in its policy. The standard wording
provides cover for damage resulting from the impact of a falling tree—section
10(a)(x)(C). It seems that ZING did not send Lim the policy and so the
standard wording should still stand.
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Self-help question 1.7
You may have thought of a number of questions that are not set out here;
however, some key information to find out includes:
• How ‘minor’ was last year’s claim? How much was the claim for?
• Were there any claims before last year? One year’s results are not enough
to go on.
• What sort of locks are in place? Are they deadlocks or normal key
operated locks?
• What sort of alarm is installed? Is it a local alarm or is it connected to an
external monitoring organisation?
• How are the windows protected? Have they been fitted with internal or
external bars and/or key operated window locks?
• How effective is the fire protection? What is the size and type of the fire
extinguisher? Is the extinguisher well serviced? Is the cooking equipment
in good condition and regularly cleaned and serviced?
• How long has the client owned the business?
• How long have they operated other take-away food businesses?
Self-help question 1.8
The total cost for Fantastic Car Repairs is:
Premium RMB13,800
plus the Fire Services Levy (1.5%) RMB207
sub total RMB14,007
plus GST (10%) RMB1,401
sub total RMB15,408
plus stamp duty (8%) RMB1,233
Total payable RMB16,641
Self-help question 1.9
This section discussed some of the key features of the financial and general
insurance markets. You need to be aware of the larger economic forces at
work that could affect your organisation so that your advice is always sound
and up to date.
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1.5 207
14, 007
10 1, 401
15, 408
8 1, 233
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The key points to this section that you have identified should include:
• the operation of financial markets and the kinds of products and services
bought and sold in these markets
• the key players in the financial markets and the relationships between
them
• the underlying relationships between insurers, intermediaries and
customers
• how government economic policies influence the financial market
• the general insurance classes of products and how these insurance
products are developed, sold and priced
• taxation in relation to the insurance industry.
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Section02 Work
ing w
ith c
usto
mers
Contents
2.1 Introduction 116
2.1.1 Learning outcomes 118
2.2 Serving your customers 118
2.2.1 Why customer service is important 118
2.3 Establishing customer relationships 120
2.3.1 Communicating effectively 122
2.4 Advising your customers 140
2.4.1 Legal requirements 142
2.4.2 Disclosure—Australia 144
2.4.3 Codes of practice 152
2.4.4 Organisational requirements 154
2.4.5 Developing and maintaining personal competency 156
2.5 Identifying customers’ needs 158
2.5.1 Gathering information 158
2.5.2 Needs profile 160
2.5.3 Fact finders and checklists 168
2.5.4 Underwriting issues 180
2.6 Finding solutions 182
2.6.1 Know your products 184
2.6.2 Analysing the data 190
2.7 Presenting solutions 194
2.8 Negotiating the solution 200
2.8.1 Confirmation 200
2.8.2 Interim cover 202
2.9 Completing the documentation 202
2.9.1 Customer records 204
2.9.2 Following up 206
2.10 Customer feedback 208
2.10.1 The value of feedback 210
2.10.2 Obtaining feedback 210
2.10.3 Responding to feedback 212
117
119
119
119
121
123
141
143
—— 145
153
155
157
159
159
161
169
181
183
185
191
195
201
201
203
203
205
207
209
211
211
213
2.11 Dealing with complaints 214
2.11.1 Controlling the situation 214
2.11.2 Difficult customers 218
2.12 Formal dispute handling 224
2.12.1 Internal dispute resolution (IDR) 226
2.12.2 The IOS (Australia) 226
2.12.3 The ISO (New Zealand) 232
2.12.4 Finalising the dispute 238
2.13 Answers to self-help questions 240
215
215
219
225
227
227
233
239
241
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Section 2
Working with customers
2.1 Introduction
Your customers expect you to provide excellent service. You can do this by
making sure they receive the best possible insurance product for their needs
and the highest level of care when making a claim.
This section discusses the role of good customer service in building and
maintaining the profitability of your organisation. You should view the
handling of proposals, policy administration, claims and renewals as an
opportunity to practise and maintain excellent customer relations and deliver
a professional service.
This section discusses your role and explains how to optimise customer
satisfaction and what to avoid, as you undertake organisation procedures.
Throughout this section you will find reference to personal accident and
sickness insurance (PAS). This product, unlike others, has been designated in
Australia by Australian Securities and Investment Commission (ASIC) as a
Tier 1 product. Tier 1 products are those that involve an element of
investment advice in the transaction between customer and insurer. To sell
personal accident and sickness products, insurance professionals must be
qualified to provide financial advice to customers at the higher (Tier 1) level.
So, in this section, we also cover the special skills and knowledge you need to
be able to provide advice to customers of PAS insurance, which is discussed in
detail in Section 3.
New Zealand does not have the same designations for policies sold. However,
the personal accident and sickness policy that is outlined in this section is
similar to those offered in New Zealand.
Finally, this section discusses the value of customer feedback in improving
service and gives a brief overview of how to handle complaints from
customers.
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2.1.1 Learning outcomes
When you have completed this section, you should be able to:
• explain how to create rapport and establish good relationships with
customers
• explain the functions associated with providing a quality and professional
service to customers
• explain the process of identifying and analysing customers’ objectives,
needs and financial situations
• explain how to identify, develop and present appropriate strategies and
solutions to customers
• explain the process of negotiating policy transactions with customers
• identify and describe the documentation that must be completed and
maintained
• explain how to handle disputes
• explain what is involved in providing after-sales service to customers
• explain how codes of practice guide an ethical approach to workplace
practice and decisions.
2.2 Serving your customers
Customers are the life blood of all businesses; without them, there is no
business! Your response to customers when they walk into your office or
contact you by telephone or email will have an ongoing effect on their
attitude towards you and your organisation. It is important, therefore, that
you get it right—the first time!
2.2.1 Why customer service is important
Let’s start by reflecting on the following:
• New business is more expensive than renewals because of set-up and
administration costs.
• New customers generally have a higher loss ratio in their first two years.
• Your business may have to hold a customer for three years in order to
break even.
• The most profitable customers are those which the company holds for at
least five years.
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If your company’s retention rate for customers is low, it is going to have a
higher cost base than other insurers which hold their customers for longer
periods. Poor customer relations coupled with a corresponding poor customer
retention rate will seriously affect the profitability of an insurance business
and compromise its competitiveness in the marketplace. Therefore, it is most
important to retain customers because this reduces costs.
If you want to retain your company’s customers and maintain your business
edge, you must put effort into establishing and maintaining good working
relationships with your customers.
In particular, the increasing use of call centres reinforces the need for
telephone etiquette when dealing with customers.
2.3 Establishing customer relationships
You probably spend a large proportion of your time and energy
communicating with customers. While some of this communication is
informal in nature, it plays an important part in establishing and maintaining
good working relationships between you and your organisation’s customers.
Whether you are contacting customers to provide insurance products or
assisting them to prepare claims, it is important to establish rapport. Good
rapport with customers leads to good working relationships.
Relationships are built on trust. If you are perceived by the customer as
interested, supportive and professional then you will more quickly develop a
trusting relationship. This accomplishes both the customer’s and your
organisation’s needs. The secret to building trusting relationships is effective
and regular communication.
You may find the following tips helpful when establishing rapport with your
customers:
• project a positive organisational image
• where applicable, establish and maintain eye contact
• adopt a personal approach
• highlight those areas you have in common
• encourage conversation
• be enthusiastic
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• ensure that the level of communication is appropriate to the customer’s
requirements
• offer to follow-up any enquiries that you cannot answer immediately and
arrange a mutually agreeable call-back time
• maintain customer confidentiality.
Activity—Good rapport
List some of the things you and your colleagues currently do within your
organisation to create and maintain good rapport with your customers.
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2.3.1 Communicating effectively
Effective communication and interpersonal skills are some of the most
important skills needed when establishing and maintaining good customer
relationships.
In its simplest form, communication can be described as a process of sending
and receiving information via a particular medium. The following model
demonstrates that interaction:
The medium through which communication takes place can vary greatly;
however, in the office it usually occurs through such forms as verbal
(telephone calls, face-to-face conversations), non-verbal (body language) and
written (emails, memos, etc.).
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Self-help question 2.1
Using this model, think about the different types of media you can use in
your communication to send a message to someone.
An answer to this self-help question is provided at the end of this section.
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Whatever form communication takes, it requires a degree of skill to ensure
that the message is framed and given by the sender so that it can be
understood by the receiver. It should always be courteous, helpful and
appropriate to the relationship and its purpose. Let’s take a look at some of
these types of communication in more detail.
Listening skills
It is impossible to communicate effectively unless you listen to your
customers to correctly identify what it is they need from you and your
organisation. Never assume that you know your customers’ needs. You can
only correctly identify their needs through the questions you ask. You then
use active listening skills to analyse what you hear in response to your
questions, whether face to face or over the telephone.
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You can enhance your listening skills by:
• attending to what your customers are saying, as well as how they are
saying it
• being patient if customers are experiencing difficulty when
communicating with you
• taking notes, where appropriate, to ensure you do not forget any
important details
• identifying and considering any special requirements
• asking questions to investigate needs or clarify customers’ needs and
expectations
• listening to the whole message—it is important not to assume that you
know what your customers are going to say before they say it
• repeating your understanding of the question to reinforce that you have
understood what the customer is saying.
Once you are confident that you have an accurate idea about your customers’
needs, you can begin to discuss how you can help them.
Questioning skills
Effective questioning skills enable you to:
• establish reasons for your customers’ enquiries—e.g. claims, complaints,
etc. as well as sales)
• identify their needs, objectives, financial situation and risk profile.
There are two types of questions:
• open questions—these require a detailed response—e.g. could you explain
what sort of security system you have in your home?
• closed questions—these require a single answer, yes or no—e.g. do you have
a security system in your home?
By asking open questions, you will encourage your customers to talk freely.
However, there may be times when closed questions are more appropriate; for
example, when you require specific information.
Telephone techniques
The telephone is a convenient way to communicate. The way you answer
your phone, and your response to the caller, will give a lasting impression of
your business, and it provides the opportunity for gaining a competitive edge
in determining a sale.
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Communicating by telephone is different from communicating face to face.
The listener is using only one of five senses to interpret the information
communicated. It is very important to remember to speak a little slower and
clearer than you would in a face-to-face conversation. This allows time for
the listener to take in all that you are saying.
Remember, customers are not an interruption to your business—they are your
business. Here are some tips for communicating effectively via the telephone.
• Smile when answering the phone—this encourages a positive manner.
• If possible, answer the phone before the third ring.
• Greet the caller by saying ‘good morning’ or ‘good afternoon’, giving your
company or department name and then your own name.
• Listen attentively—the way you listen affects your understanding of what
the caller requires.
• Listen with empathy and understanding—people will be encouraged to
talk, thus providing you with an opportunity to discover their needs.
• Make positive statements like ‘thank you for calling’.
• Ask open questions beginning with Who, When, How, Why, Where.
• Never use voicemail to screen or filter calls.
• If you’re unable to complete a task immediately, let the caller know when
you can do it—and make sure that you do.
• When offering to pass on a message, take the caller’s details and assure
them it will be passed on—then make sure that you do it.
• Where appropriate, use a customer’s name during the conversation.
• Be sincere and genuine.
• Take responsibility for getting things done.
• Avoid technical jargon—speak in a language that the caller will
understand.
Communicating with people from diverse backgrounds
The community is comprised of many people from diverse backgrounds and
cultures, including some with disabilities. Any communication with any of
these customers should be based on respect, sensitivity to their needs, and
should be in accordance with relevant anti-discrimination and equal
opportunity laws.
Of particular concern are customers with disabilities. Sometimes their
disability is not easily recognised and care should be taken to ensure
sufficient feedback is obtained and that your message has been received and
understood.
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Federal and state/territory anti-discrimination and equal opportunity
legislation in Australia and similar legislation in New Zealand, make it
unlawful to treat people with disabilities or people who are imputed to have
disabilities any less fairly than people without disabilities or imputed
disabilities. Disabilities can be either physical or intellectual. Contract law
requires a person entering into a contract to understand fully the nature of
the contract otherwise, in some circumstances, the contract can be invalid.
Activity—Human rights legislation
For information on dealing with people from diverse backgrounds and the
related legislation, you can access the following websites:
Australia—the Human Rights and Equal Opportunity Commission website at:
www.hreoc.gov.au
New Zealand—the Human Rights Commission website at: www.hrc.co.nz
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Communication in the workplace
Your workplace could consist of a number of work groups or teams. These work
groups or teams have the responsibility to complete a task/project or to reach a
specified goal. As a team member, you are expected to possess the various skills,
knowledge and attitudes necessary to contribute to the overall effectiveness of
the team that you have been assigned to. Some of these include:
• interpersonal skills such as:
− listening
− speaking
− questioning
− assertiveness
• attitudes and values such as:
− respect for others
− self esteem
− initiative
− tolerance
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− trust
− commitment to non discriminatory language
• the ability to:
− participate in discussions
− work together in goal setting
− co-operate
− help manage conflict
− problem solve
− have cross cultural awareness
− manage stress
• reading and writing skills for:
− recording information
− organising information
• presentation skills that include:
− appropriate verbal and non-verbal communication
− audience awareness
− the application of appropriate techniques
− good use of technology.
Routine document preparation
Preparing documents for despatch is an important function in
communicating with customers. Time spent thinking about the tasks
involved will reduce the number of errors.
Routine documents include such things as quotations, interim contracts,
proposal forms, standard letters, simple letters of instruction, brochures and
claim forms, to name a few.
Whilst most of these are pre-prepared in their layout and construction, it is
vital that the correct documents go to the customer in the manner in which
they have been intended. Failure to include the standard letter that
accompanies a proposal form may cause confusion with the customer not
being able to understand what it is they have to do to finalise the transaction
or where to return it.
Occasionally, you may need to construct simple letters of instruction or other
such documents where a standard letter may not be sufficient. There are some
rules to keep in mind when preparing these letters such as:
• organise your thoughts beforehand
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• spend time thinking about what you want to say
• keep it simple
• avoid big words, complex paragraphs or technical jargon
• avoid slang and figures of speech
• proofread your work to ensure it makes sense.
Calculations
Sometimes it will be necessary as part of the communication to convey
calculations. When setting out calculations, remember to use the standard
conventions that your own organisation uses to present this information.
Checking the calculations is therefore a vital function to ensure that there are
no errors in the figures. Always make sure the totals balance, and that values
or units of currency are presented correctly.
It is a good idea to get a co-worker to proof read and correct any mistakes in
your calculations to ensure there are no inconsistencies or errors. Failure to
proofread can cause embarrassment, not to mention having the customer lose
faith in the ability of your company to ‘get it right’.
Activity—Obtaining information
Think about a time when you needed to obtain information from, or pass
information to, a customer. Provide a typical example for each of the
following:
1 What specific information did you require from your customer?
2 List two examples of open questions that you may have asked your
customer.
3 List two examples of closed questions that you may have asked your
customer.
4 List a skill, a type of knowledge and an attitude you must possess to work
effectively as a member of a team.
5 List three things that will help you to prepare a simple letter of instruction
to the customer.
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Presentation skills
The way you present information to the customer (verbally or in writing) is
also an important communication skill. Some examples of presentation skills
include:
• writing skills—the way you prepare and present a written response to
your customers’ enquiries
• speaking skills—the language and grammar you use when you talk with
your customers
• personal appearance—the image you present to customer—e.g. clean, tidy,
well groomed, observing the dress code of your organisation, etc.
Common sense applies when presenting information, so make sure you:
• are not rude
• do not pretend to understand when you do not
• do not hurry the customer
• do not talk down to the customer
• use technical terms sparingly when talking to customers.
For some customers, technical terms and industry jargon may be daunting or
confusing. The more clearly you explain the products and services that your
organisation offers, the more chance you have of acquiring and retaining
customers’ business.
The following table provides examples of technical terms that are commonly
used. Make sure that your customer understands the meaning of a term before
you use it.
Term Meaning
Excess The amount a customer must pay in the event of a claim
Premium The amount payable for 12 months (or other period) of
cover insurance
No claims bonus (NCB) The premium discounts that are given to customers due to
their good claims history
Third party The other person involved in the accident
Cover note Temporary cover for a specific and shortened period of
time until payment and completed forms are received
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Non-verbal communication
How you say something (non-verbal communication or body language) is
just as important as what you are saying (verbal communication). Consider
the following points:
• Meaning is conveyed either intentionally or unintentionally by body
language or tone of voice.
• Body language accounts for a considerable percentage of meaning in
communication.
• When there is inconsistency between the verbal and non-verbal
behaviour being displayed, most people will interpret the non-verbal
communication as the intended message.
Some examples of non-verbal communication include:
• your tone of voice—e.g. if you sound interested or concerned about your
customer
• the clothes you wear and how you wear them
• maintaining your personal space and that of your customers
• your body movement and facial expressions
• your work area—e.g. a neat and tidy work area suggests that you are
organised and have the customer’s portfolio under control.
As discussed, many of us are unaware of the non-verbal messages we send
when communicating. It can also be difficult to determine what are
appropriate and inappropriate non-verbal behaviours.
In Australia and New Zealand, appropriate non-verbal behaviours include:
• arms resting in a neutral or relaxed position
• regular eye contact
• smiling, attentive facial expressions
• positive open-hand gestures
• nodding head
• maintaining appropriate personal space.
Whenever you interact with customers, try to avoid the following
inappropriate non-verbal behaviour:
• folding arms across chest/hands on hips—this can be seen as threatening
or a sign of anger
• lack of eye contact—this can signal a lack of interest, boredom or
untruthfulness
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• frowning, squinting—this can signal disapproval
• intimidating hand or head gestures
• standing or sitting too close to customers—this can be threatening or
intimidating
• foot, hand or pen tapping—this can signal impatience or boredom
• sitting on tables—in New Zealand, this is seen as culturally insensitive.
It is also important to recognise that what is appropriate in Australia and New
Zealand may not always be appropriate in other cultures.
Remember, the way you say something and how you use gestures or position
your body as you speak is just as important as what you are saying. You
should also be mindful of your customers’ non-verbal communications. This
will provide you with feedback as to how your message is being received.
2.4 Advising your customers
When advising customers about their insurance needs, you must make sure
they fully understand the products and services you are offering. You also
have other obligations towards your customers when providing them with
advice.
These obligations are:
• legal requirements
• code of practice requirements
• your organisation’s requirements.
Note: If the information your customer requires is not immediately available,
it should be located and/or the customer referred to the appropriate person.
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2.4.1 Legal requirements
When dealing with customers, the key legislation that affects your work is as
follows.
Australia New Zealand
Australian Securities and Investments
Commission Act 1989
Consumer Credit Code
Consumer Credit Act
Corporations Act 2001
Insurance Contracts Act 1984
Insurance Act 1973
Privacy Act 1988
Trade Practices Act 1974
Various State-based Fair Trading Acts
Federal and state/territory
Anti-Discrimination and Equal
Opportunity Acts
In Australia, when preparing advice for customers, you must meet the
requirements of the Corporations Act. This means that you must keep:
• a record of all customer contacts
• a copy of all correspondence regarding customers and their insurances—
e.g. declarations, valuations, needs analyses, application forms and so on
• all calculations used in preparing advice and recommendations to
customers.
Under the Corporations Act, certain customers are referred to as ‘retail’. For a
customer to be classified as a retail client, they must be:
• an individual or small business employing fewer than 20 employees, or
fewer than 100 if manufacturing
• purchasing a special class of insurance:
− home buildings
− home contents
− motor vehicle
− consumer credit
− personal accident and sickness
− travel
Commerce Act 1986
Consumer Guarantees Act 1993
Fair Trading Act 1986
Health and Safety in Employment Act 1992
Human Rights Act 1993
Insurance Companies (Ratings and Inspections)
Act 1994
Insurance Companies Deposits Act 1953
Insurance Law Reform Act 1977
Insurance Law Reform Act 1985
Insurance Intermediaries Act 1994
Privacy Act 1993
Accident compensation legislation
Secret Commission Act 1910
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− any other personal/domestic policy
− medical malpractice.
Remember, all personal advice and recommendations to ‘retail’ customers
must be presented to the customer in a Statement of Advice that complies
with the requirements of the Corporations Act, and must have taken into
account their individual needs, objectives, financial situations and risk
profiles.
In Australia, the Australian Securities and Investment Commission (ASIC)
requires you to justify and support recommendations and advice made to
your customers by providing relevant information where necessary.
New Zealand does not have specific legislation for preparing advice to
customers; however, the requirements outlined above are good practice. The
Fair Trading Act 1986 and the Consumer Guarantees Act 1993 do specify the
minimum standards of conduct and professionalism for anyone selling
products and services. These Acts apply to insurers and insurance
intermediaries. The Secret Commissions Act 1910 also outlines additional
responsibilities for insurance intermediaries.
You can find more information on the legal requirements for the insurance
industry in the modules FSI402 Insurance Law and Regulation (Australia) and
FSI406 New Zealand Insurance Law and Regulation.
2.4.2 Disclosure—Australia
Disclosure here refers to the information you must provide to the customer.
Insurers have disclosure requirements under the Insurance Contracts Act and
the Corporations Act.
To meet the requirements of the Corporations Act, insurers may have to
provide customers with one or more of the following documents:
1 Financial Services Guide (FSG)
2 Statement of Advice (SoA)
3 Product Disclosure Statement (PDS).
Let’s look at what each of these documents contain.
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Financial Services Guide (FSG)
The FSG is a disclosure document that helps retail clients decide whether to
obtain financial services from the providing entity.
It is designed to give customers some information about who they are doing
business with, and any special relationships between the various insuring
parties.
The FSG must be titled ‘Financial Services Guide’ and must show the date of
its preparation.
Broadly, the FSG informs the customer about:
• the name and contact details of the licensee or authorised representative
• how customers can provide information to the licensee or authorised
representative
• information about the types of financial services the licensee or
authorised representative is authorised to provide
• for whom the representative acts
• what remuneration or benefits are received by the licensee or authorised
representative for providing the service
• relationships the licensee or authorised representative has with issuers or
other associations or relationships that might influence decisions
• the dispute resolution system in place
• the nature and significance of the services being provided under a binder
(if one is involved)
• if personal advice has been provided and commissions are expected to be
received, a statement that the amount or a description of the commissions
will be found in the Statement of Advice.
The FSG must be in writing (this includes electronic form), and should be
given to the customer before the financial service is provided.
Note: There are different FSGs for licensees and authorised representatives.
Statement of Advice (SoA)
The Statement of Advice is a disclosure statement that helps a retail client
understand, and decide whether to rely on, personal advice (provided by the
licensee or authorised representative).
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The SoA is given to the customer at the time you are providing personal
financial advice. By law, you are required to base your advice on a sound
knowledge of the customer’s personal circumstances (their objectives,
financial situation and needs), and to provide appropriate advice based upon
your enquiries and deliberations.
The SoA must be titled ‘Statement of Advice’ and must show the date of its
preparation.
The SoA includes:
• the advice
• what you based your advice upon
• name and contact details of the providing entity
• information about remuneration or other benefits
• information about any other relationships between the provider and
insurer
• information about other options that have been considered when
recommending a financial product
• a warning about incomplete or inaccurate information.
Product Disclosure Statement (PDS)
The Product Disclosure Statement is a point-of-sale document that sets out the
significant features of a financial product, including its risks, benefits and
costs. Its broad objective is to assist consumers with comparing and making
informed choices about financial products.
The PDS must be prepared by the product issuer (in the case of insurance
policies, this will be the insurer). It is given to the customer when, or before,
an offer is made to provide a financial product.
The PDS must include:
• the name and contact details of the issuer and the date of the PDS
preparation
• details of the benefits and an explanation of the circumstances under
which they will be provided
• any significant risks
• costs, fees payable and ongoing charges
• significant features and benefits, rights, terms and conditions
• information about dispute resolution processes
• information about any ‘cooling off’ rights that apply
• information about the effect of taxation on the financial product.
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Insurers must meet the content requirements of the PDS in conjunction with
their policy wording.
Note: More detail about Disclosure is provided in FSI402 Insurance Law and
Regulation under Section 3—The Corporations Act.
Activity—Personal accident and sicknessinsurance (Australia)
Obtain a policy for personal accident and sickness insurance. Read over the
wording and note the range of information it contains.
1 Check whether the policy wording meets the requirements of the PDS.
2 If it does not, what information would need to be added to the policy
wording to make it comply with the requirements of the PDS?
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Activity—Duty of disclosure (New Zealand)
What duty of disclosure does the insurer owe to the customer under New
Zealand legislation?
What duty of disclosure does the customer owe to the insurer under New
Zealand legislation?
List the legislation that is relevant.
You may wish to refer to the resource provided with this module or go to the
public access to legislation website at www.legislation.govt.nz.
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2.4.3 Codes of practice
In Australia, if your organisation is a signatory to the Code, you must abide by
the General Insurance Code of Practice in all your dealings with customers.
You should ascertain whether the Code applies to your organisation.
In New Zealand, if your organisation is a member of the Insurance Council of
New Zealand, you must abide by the Fair Insurance Code.
Some of the main provisions of the General Insurance Code of Practice in
Australia are that you must:
• act in a fair, honest and transparent manner in all your dealings with your
customer
• adhere to the Code service standards for customers, particularly in
relation to acceptance of proposals/applications for insurance, claims
handling and complaints and dispute resolutions and procedures
• make information available to customers
• provide customers with reasons for your decisions and the information
relied on by you to make both underwriting and claims decisions
• allow customers to access and correct information
• provide special claims-handling consideration for customers and third
parties in financial hardship and for claims arising from catastrophe
events
• as an insurer, guarantee the repairs and workmanship you have arranged
for your customer’s property.
Some of the main provisions of the Fair Insurance Code in New Zealand are
that you must:
• act in a fair and honest manner in all dealings with your customers
• adhere to the service standards prescribed in the Code, particularly in
relation to claims handling and complaints and dispute resolutions and
procedures
• make information available to customers.
Some of the main legal and ethical requirements of the legislation and the
Codes from both Australia and New Zealand are set out in the following table.
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Regulatory requirement Ethical behaviour
Duty of disclosure You and the customer must both provide all the
necessary and relevant information relating to the
policy, whether processing proposals or claims. You
need to ensure that your customers fully understand
their duty of disclosure.
Privacy When recording information and making
recommendations to customers, you must maintain
confidentiality at all times.
Duty to avoid You and the customer must avoid any
misrepresentation misrepresentation when presenting
relevant facts—you must tell the truth at all times.
Duty to act promptly In all your dealings with customers, you must act
professionally and promptly and avoid unnecessary
delays—particularly in relation to notifying customers
about claims.
Training You must be fully trained to enable you to competently
provide the services and products you are selling.
The Codes of Practice will be discussed in detail in FSI402 Insurance Law and
Regulation and FSI406 New Zealand Insurance Law and Regulation.
2.4.4 Organisational requirements
Each organisation will have its own guidelines, policies and procedures for
providing good service. These will normally include things such as
procedures and timelines for dealing with customer queries, complaints and
authority levels. In particular, in Australia, you will need to be aware of the
timeframes for service standards for acceptance of proposals/applications for
insurance, claims handling and dispute resolutions and procedures.
It is important that you are thoroughly familiar with your organisation’s
policies and procedures for advising customers.
Retail products provided by your organisation are provided under a licence as
a financial service provider. You are required to be trained according to your
job function as well as to the authorised level of advice before dealing with
customers. This training will initially include the following:
• product knowledge
• company policies and procedures
• skills related to giving advice
• customer service skills
• dispute handling and resolution procedures.
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Once you have been trained and given authority to provide the appropriate
level of advice, you are then in a position to negotiate with the customer in
helping to arrange their insurance needs by undertaking the following tasks:
• identifying the needs of the customer
• confirming with the client that they understand the advice
• matching the clients needs to an appropriate solution
• clearly explaining:
− any associated fee and cost structures of the solution
− the timeframes for execution and processing of the solution
• coordinating and implementing the agreed solution.
These tasks and activities are explained in more detail later in this module.
2.4.5 Developing and maintaining personalcompetency
Part of the continued provision of good customer service requires you to keep
up to date with knowledge and skills. Regularly seeking out and completing
professional development opportunities helps to maintain your level of
competence and meets authorisation and licensing requirements.
Ways you can achieve this include:
• clarify the level of competency required
• identify professional development needs
• review professional development needs regularly
• actively seek out development opportunities.
Activity—Advising customers
Locate and read your organisation’s guidelines for advising customers.
1 Are authority levels set out clearly?
2 Are the customer service guidelines or procedures clear?
3 Is there a standard induction program and regular training sessions to
maintain your understanding of your job role and obligations?
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4 What level of training does your organisation require for someone who is
advising customers?
5 Do your organisation’s guidelines, service standards and training
requirements meet the requirements of the General Insurance Code of
Practice or the Fair Insurance Code?
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2.5 Identifying customers’ needs
Effective communication skills and efficient information-gathering tools are
the keys to identifying your customers’ insurance needs. You must also be
familiar with the various insurance products offered by your organisation.
Once you have identified your customers’ needs, you can then match these
needs to your organisation’s products and services.
2.5.1 Gathering information
The first step in identifying your customer’s needs is to gather as much
relevant information as necessary from your customers. It is this information
that provides the basis for the underwriting process.
Insurers have specific information-gathering tools to assist you with this task.
For example, to identify customers’ needs for accident and sickness cover, you
need to find out:
• the customer’s attitudes, views, feelings, assumptions, needs and wants—
these are usually collected from the customer through a needs profile
• the customer’s situation—personal details, financial situation, risk profile
and short, medium and long-term objectives. Priorities, preferences and
concerns are identified and agreed upon.
Standard forms are usually used to gather this information; for example, fact
finders and customer information forms. A fact finder may combine factual
information with the customer’s needs profile.
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Whenever you are gathering information from customers, you need to do the
following:
• Listen attentively when customers (or prospective customers) outline the
reasons why they need a particular insurance or program of insurances.
• Seek feedback from customers so that you interpret their requirements
correctly.
• Record the information in your organisation’s specified format.
Let’s now take a look at some information-gathering tools commonly used by
insurers.
2.5.2 Needs profile
The most effective method of identifying your customers’ needs is through a
formal needs profile. A needs profile will usually consist of two parts:
• One part simply aims to identify your customers’ existing insurance.
• The other part is a series of pre-prepared questions structured in such a
way as to quickly identify the customers’ insurance requirements.
A needs profile also identifies the relative values that customers place on the
features and benefits of insurance products or services. In this way, you learn
what is of value to your customers, and you save time by focusing on your
customers’ needs rather than on your organisation’s capabilities.
Occasionally, the services of a specialist may be required to help you
determine the needs of your customer. Where appropriate, you should refer to
specialist advice in order to establish the most effective way of meeting the
customer’s needs.
Some important hints on calling in the help of a specialist include:
• know your own limitations
• know who you can call on to assist
• know when to call them in.
The following is a sample of a typical form that is used to gather information
from customers about existing cover and relative values.
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Existing cover
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Relative values
Customer needs profile
Questions VVVVVerererereryyyyy NotNotNotNotNot
importantimportantimportantimportantimportant ImportantImportantImportantImportantImportant importantimportantimportantimportantimportant
Our standard income protection
insurance provides for a waiting
period of three months. We can
provide a shorter waiting period o o ofor a higher premium. How important
would having a shorter waiting period
be to you?
In the event of your accidental death
or disability, how important are the
following considerations to you:
• Income for your family o o o
• Mortgage repayments/debts o o o
• School fees o o o
• Health costs o o o
Customers vary in the level of risk
they are comfortable with. How
important is it for you to avoid a o o ohigher risk insurance option
(e.g. a lower selected sum insured
or longer waiting period)?
Our cover provides protection in
the event of accidental disability or
death. How important is it that you o o oreceive cover for illness, disability or
death that is not caused by an accident?
Our cover provides income protection
for up to three years. How important
is it to you that your policy provides o o olong-term income protection—i.e.
beyond three years?
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As you can see from this example of a PAS needs profile, the information you
have to gather from your customer includes:
• the customer’s priorities—your recommendations should address all the
customer’s highest priorities
• consideration of beneficiaries—what does the customer expect and want
in relation to others who will benefit from the insurance?
• lifestyle requirements—what income does the customer need to maintain
their present lifestyle?
• short, medium and long-term goals
• investment risk profile—what level of risk is the customer comfortable
with: low, medium or high risk? You need to explain clearly that lower
premiums may mean restricted cover or higher risk to the customer
• preferences and concerns regarding investment and insurance options.
New Zealand students should be aware of the cover provided by the ACC in
New Zealand for:
• bodily injury
• associated medical costs
• earnings-related compensation.
Your policy solutions should aim to address all ‘very important’ concerns/
needs and perhaps ‘important’ needs. There is generally no need to spend
time on things that are of little importance to your customers.
A properly constructed needs profile will identify areas where some products
may not be able to help a customer—for example, because of a clash between
what the product offers and what your customer needs. The profile will also
identify those coverage concerns that you can address by way of
endorsements to standard cover.
An analysis of the needs profile will also help you to identify opportunities
for offering additional benefits to your clients via relationship marketing,
cross-product marketing or additional-product marketing.
Your responses to a customer’s needs should always be designed to encourage
them to become a long-term client because their individual needs are being
met and anticipated.
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2.5.3 Fact finders and checklists
Fact finders and checklists are another essential insurance tool. They give you
important information to supplement your initial discussions with
customers. Most insurers develop standard forms for gathering this
information.
The information required by insurers will differ according to the type of risk
being underwritten. For example, there is nothing to be gained by asking
prospective customers about turnovers and payrolls of companies when they
want to insure their factory buildings. Instead, insurers will want to know
things such as:
• location of buildings
• construction of the buildings
• use of the buildings
• security of the premises
• housekeeping
• fire protection
• where the nearest fire service is located
• occupation of adjacent premises.
In addition to the customer’s current cover, the fact finder sets out in detail
the customer’s full personal and financial situation.
A fact finder is usually an extensive document—too extensive to provide in
full here. The following is a shortened version of a sample PAS fact finder. It
demonstrates the kinds of questions that might be asked.
A well designed PAS fact finder usually obtains the following additional
information from customers:
• financial situation—financial assets and obligations, income, expenditure,
debt position, etc
• business details, as applicable, including other insurances
• current insurance cover
• life/personal accident/medical/superannuation policies.
This question and answer part of the underwriting process is important as it
allows you to gather exactly the information your organisation requires to
accurately assess risks. This in turn, ensures that your customers obtain the
best insurance cover for their needs.
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Sample fact finder
Personal informationPersonal informationPersonal informationPersonal informationPersonal information
Name
Address
DOB q Male q Female Height Weight
Occupation/duties
q Full-time q Part-time Average weekly income $
How many flights do you anticipate undertaking during the next year?
Charter flights Scheduled flights
Name of employer
Address of employer
DependantsDependantsDependantsDependantsDependants
Name Age
Name Age
Name Age
Medical historyMedical historyMedical historyMedical historyMedical history
Have you consulted a doctor or any other health provider or been admitted to
hospital for any ailment during the last five years? Give details.
Do you have any existing medical condition for which you have sought or
received medical treatment? Give details.
Have you ever suffered from any of the following conditions: q Yes q No
high blood pressure, diabetes, cancer, arthritis, angina or heart
disease, paralysis, or any disorders of the spine, or any mental
disorder or impairment? Give details.
Have you ever been declined any form of insurance? q Yes q No
Have you ever claimed or received any workers’ q Yes q No
compensation benefits?.
Do you engage in any hazardous work or leisure activities q Yes q No
or any extreme sports—e.g. skydiving, rock climbing?
Is there any other information you have that might lead you q Yes q No
to believe you are not currently in good health?
DeclarationDeclarationDeclarationDeclarationDeclaration (to be filled out by the customer) I understand that the information
I have provided here will form the basis of the advice that will be provided to me
by the insurance adviser ...................., and that any inaccurate information may lead
to inappropriate recommendations. I………………………........................declare that the
information I have provided in this form is complete and accurate to the best of
my knowledge and belief.
Customer’s signature ................................................................................. Date ...............................
Adviser’s signature ................................................................................. Date ...............................
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Pre-existing conditions
For all types of PAS insurance, known pre-existing medical conditions are
usually excluded. The proposal form usually contains an authority signed by
the customer to obtain details from the customer’s medical providers if the
underwriter needs to clarify the position on pre-existing conditions.
For HIV/AIDS many life insurances or related policies contain specific
questions on this matter or requirement for a personal medical check to cover
the issues.
The issue of customer disclosure of pre-existing medical conditions, and
whether or not a condition is regarded as existing at the time the policy was
taken out, can be problematic. It is in your interests, as well as those of your
customer, to clarify these issues before any agreement is signed.
Self-help question 2.2
Study the facts outlined in the following scenario and make notes on what
arguments the insurer and the insured might put forward in defence of their
separate positions. If possible, discuss the case with a colleague or fellow student.
Scenario
A customer who had suffered from skin cancer for many years took out a
personal accident and sickness policy. He stated that the cancer had been
treated successfully and was unlikely to recur. The insurer accepted the policy
as the insured was in a non-hazardous occupation; however, they did not
check with the insured’s doctor.
Some time later, the insured was involved in a car accident and lost the sight
of one eye. He claimed for the amount listed in the policy schedule for that
event.
The insurer, when checking the medical details, found that the skin cancer
was not curable and would probably recur. It declined the claim on the basis
of non-disclosure and alleged it would not have accepted the policy on any
conditions, even though the claim had nothing to do with the alleged non-
disclosure.
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Question
What do you think would be the likely outcome of this case if it came to
formal dispute resolution?
An answer to this self-help question is provided at the end of this section.
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Privacy
The information you gather in a fact finder is personal and sensitive. In
Australia and New Zealand, there are strict laws governing the way such
information must be collected, used, stored and handled. Broadly, you should:
• discuss customer-related business only in the context of the workplace
• use the information only for the purpose for which it was collected
• store it securely
• allow a person access to their own personal records if requested, and
correct any errors
• not release personal and sensitive information to any third party without
written consent.
Privacy legislation is covered in detail in FSI402 Insurance Law and Regulation
and FSI406 New Zealand Insurance Law and Regulation. You should make
yourself familiar with each of the 10 General Insurance Information Privacy
Principles (Australian students) and each of the 12 information privacy
principles of the Privacy Act 1993 (New Zealand students). In China all
privacy issues need to follow the privacy requirements that are stated within
the Chinese Insurance law.
Activity—Privacy principles
For more information on the privacy legislation, privacy principles and
insurance-related case studies, you can access the following websites:
Australia—Office of the Privacy Commissioner: www.privacy.gov.au
New Zealand—Privacy Commissioner: www.privacy.org.nz
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Confirming with the customer
It is important to confirm the information you have collected with the
customer by asking them to read over the fact finder and sign the
confirmation in the space provided.
You should then explain to the customer what happens next; that is, you will
analyse all needs and priorities in light of their situation and get back to them
with specific recommendations within an arranged timeframe.
Activity—Key obligations checklist
The following checklist is provided to remind you of your key obligations to
the customer at the first meeting/contact.
Checklist
Disclosure—have you made full disclosure o Yes o No
in accordance with industry Code, regulations
and legislation?
Is the customer information complete and accurate? o Yes o No
Customer concerns—have you identified and dealt o Yes o No
with them all?
Active listening skills—have you applied active o Yes o No
listening skills in your dealings with the customer?
Clear and unambiguous language—have you o Yes o No
explained services and products to the customer
clearly, avoiding jargon, thus helping the customer to
make an informed choice?
Budgetary constraints—have you considered the o Yes o No
client’s needs whilst working within their
budget?
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Research relevant sources of information—have you o Yes o No
identified, obtained, organised and analysed
information to provide an accurate and
satisfactory response?
Scope of responsibility—have you determined o Yes o No
whether the customer enquiry is within your
scope of responsibility or authority area?
Questions
1 Reflect on a recent first meeting with a customer (either face to face or on
the phone).
2 How many of these obligations did you meet? Note those (if any) you
omitted.
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Managing information and planning work
Once the customer’s needs have been identified, managing the information
gathered and planning the work required to meet those needs is crucial to
your ability to deliver within the expected timeframes.
Your understanding, therefore, of the importance of the documents used to
identify your customer’s needs becomes a critical factor in managing the
process. An important function of this task is to be able to interpret that
information so that you can identify the solution that best meets the
customer’s needs.
This process includes verification of the proposed solutions against your
company’s guidelines, policies and procedures to ensure that the solution
identified can in fact be delivered. This also refreshes your level of
knowledge required and ensures that you do not go beyond your level of
authority.
Customer service standards of your organisation will require you to complete
these tasks and provide the appropriate solutions within various timeframes.
It is important for you to understand that, when you are planning your work,
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you review these standards to ensure that you allocate the appropriate time
and resources needed to meet those requirements.
The next task is to gather and prepare the relevant documents for
presentation to the customer. Your company will have set guidelines on how
this is to be achieved and what documents are required.
You should ensure that any information presented is both accurate and clear
so that the customer will be able to understand and be in a position to make a
decision. This can be achieved by checking and evaluating the data and
calculations for accuracy, correctness and simplicity, and by ensuring it is
organised in a way that will be easy for the customer to interpret.
2.5.4 Underwriting issues
Underwriting may not be an issue directly associated with your insurance
role; however, it is helpful for you to understand how insurance underwriters
operate. This will help you to appreciate why you must gather detailed
information about your customers’ insurable risks.
What is underwriting?
Underwriting is a process of evaluating risks and assessing the appropriate way
to deal with those risks, by matching an insurance product to a customer’s
needs. Key parts of this process include arranging appropriate terms and
conditions of the insurance contract and setting suitable premiums.
The terms and conditions should be appropriate for the risks assessed, and the
risk assessment must be based on adequate information about the subject
matter for insurance.
Information that can identify the difference between a high and low risk
includes, but is not limited to:
• age—based on historical information, a particular age bracket may be a
higher or lower risk—e.g. males between the ages of 18 and 25 are
considered a higher risk than others when taking out motor insurance
• claims history—repetitive claims can be seen as a high risk and,
alternatively, a low claims history can be seen as a low risk and, thus, be
more profitable to the insurance organisation. The ‘no claims bonus’
offering a reduction of premium for safe drivers indicates the
attractiveness of a low claims history to motor insurers
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• security—the higher the security measures in place, the lower the risk of
certain events occurring. Fire alarms and sprinkler systems are common
requirements for reducing the risk of loss from fire.
Underwriting guidelines
All insurers have strict underwriting guidelines that inform their
underwriters about things such as:
• business they can and cannot accept
• reinsurance restrictions on the type of business they can accept—e.g. if
they accept a certain type of risk (such as underground mines) they may
not have any reinsurance protection
• the cost of reinsurance
• what premiums to charge
• endorsements to be placed on certain policies, possibly restricting cover.
Reinsurance is an essential agreement entered into by all insurance
companies, in which they pass on some of the risk they have accepted to
other insurers. This means that, in case of a catastrophic event, the insurer
does not bear the full costs themselves.
Whenever you arrange insurance for your customers, you must be aware of
your organisation’s underwriting guidelines about the level of acceptable risk.
2.6 Finding solutions
Using the information gathered from the needs analysis and other sources,
you are now ready to analyse the information you have collected so you can:
• evaluate and devise appropriate strategies to meet the customer’s
expectations, and
• make recommendations on which products will best suit their needs.
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2.6.1 Know your products
The quality of the solution you devise will depend on how well you know
and understand the products offered by your organisation—both their
benefits and limits. For example, it is no use recommending a personal
accident product to a customer who wants financial support to age sixty-five
(in the event of being unable to work) because general insurance products
offer short-term income support only. Areas of particular sensitivity include:
• policy exclusions
• policy conditions
• cancellable/non-cancellable policies
• pre-existing illness
• definitions of income
• maximum benefits
• duration of benefits
• waiting periods
• lump sum or periodical payments.
You should take particular care to explain these points and their implications
when discussing options with your customers.
You should make it your business to research and identify your organisation’s
products and services and their characteristics, cover and limitations, terms
and conditions. It is also useful to compare these products with those offered
by your competitors, and make yourself aware of the differences.
Armed with this information, you are able to offer your clients sound advice
and satisfy their needs most effectively.
Maintaining your knowledge
In order to maintain your product knowledge, you need to review relevant
products and services continuously so that your information is up to date,
and you are aware of emerging trends in the financial services industry that
may affect your work.
The following case study illustrates the kind of dispute that can arise in
relation to what constitutes a pre-existing illness and the customer’s duty of
disclosure.
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Case study—Mr Jiang Xiaoping
The facts
Advance Insurance issued a weekly benefit accident policy to Mr Jiang
Xiaoping. The sum insured was RMB3000 per week for a maximum of 104
weeks with a waiting period of fourteen days.
Seven months later, Jiang Xiaoping fell off a bobcat into the bucket of the
machine and injured himself. He lodged a claim with Advanced Insurance
relating to the injuries to his ribs, left shoulder and elbow. His claim was for
benefits for temporary total disablement at the rate of RMB3000 per week, as
per the policy.
Advance Insurance denied the claim on the ground that Jiang Xiaoping failed
to disclose his full medical history by not informing it of his pre-existing
back problems.
Relevant legislation—Australia
Section 21 of the Insurance Contracts Act indicates that the insured has a
duty to disclose everything they know (or a reasonable person in their
position would expect to know) is important to the insurer when considering
whether to accept a risk. If the non-disclosure is innocent, section 28(3) of
the Act says the insurer can reduce its liability in respect of any claims
affected by the non-disclosure to what it would have been had the insurer
known the full facts.
Jiang Xiaoping’s argument
Jiang believed he had disclosed all relevant medical information to the
insurer. He did not consider that lower backache was an injury or illness. He
felt it was simply due to his occupation as a plant operator and was
insignificant. He had received no treatment for his back. Additionally, Jiang
believed his injuries were to his upper back and arm; he did not now have a
lower back problem. His symptoms were:
• pain in the elbow
• pain and pins and needles from his shoulder to his hand
• instability of the arm.
Jiang believed that even if the insurer had excluded claims for all back
injuries, he would still be covered.
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The insurer’s argument
Advance Insurance said that medical evidence showed that Jiang Xiaoping
had a medical history of back problems going back five years. He did not
disclose this on his application form. If he had, the insurer would have
excluded all injuries of the spine or spinal nerves from the policy.
The finding
The Panel of the Insurance Enquiries and Complaints Scheme (IEC) (now the
Insurance Ombudsman Service (IOS)) considered that Jiang Xiaoping (or a
reasonable person in his position) should have known that the insurer would
be interested in back injuries, generally, and that he should have disclosed
his history of back problems. The Panel also found that, if the insurer had
known about Jiang’s back problems, it would have limited the policy to
exclude any loss arising out of disease or disorder of the back. It also found
that although Jiang’s symptoms were in his arm and hand, they were caused
by an injury to his neck or spine. Such an injury clearly came within the
terms of the policy exclusion for a loss from an injury or disease of the spine,
discs or spinal nerves.
The outcome
The insurer was entitled to deny the claim on the grounds of non-disclosure
of a pre-existing medical condition.
New Zealand students
Assume a private insurer has issued a personal accident and sickness insurance
policy that provides a ‘top up’ benefit over the Accident Compensation
coverage entitlement. The attitude of the ACC is not relevant when a private
insurer is reading their decisions on the underwriting of such covers.
(Adapted from case number 99 9262 Selected Determinations January-
December 2000—Insurance Enquiries and Complaints Ltd, Australia)
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Self-help question 2.3
1 What do you believe are the key areas of dispute in the Jiang Xiaoping
case study?
2 What documents provide important evidence in this dispute?
3 If you were Advance Insurance’s representative advising Jiang Xiaoping
about taking out his policy, what steps could you have taken to avoid the
problems that arose?
An answer to this self-help question is provided at the end of this section.
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2.6.2 Analysing the data
When analysing the customer’s information, it is important to ask yourself a
number of questions, including:
• What can realistically be achieved for the customer in accordance with
the customer’s wants, needs and budgetary restraints?
• What level of cover will meet the customer’s needs?
• What products best meet the customer’s needs? (If your organisation’s
products do not meet these needs, you must tell the customer so.)
• How can the suggested solutions supplement existing covers?
• Will the suggested solution meet the customer’s needs and priorities?
• Have I considered all the customer’s circumstances in making my
evaluation?
Seeking specialist advice
From time-to-time you will need the expertise of specialists to provide you
with information that will help you make your analysis. Most insurance
professionals have colleagues in similar fields and can discuss in general
terms an issue or potential problem (remembering to abide by privacy
guidelines and regulations). You may need a specialist where:
• the insurance cover requested falls outside the insurances offered by your
organisation
• advice is needed regarding asset values—e.g. an appraisal by a qualified
jeweller of valuables to be insured
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• the customer is engaged in a high risk occupation
• specialist medical advice is needed to determine a level of cover
• other matters relating to a customer personally, or to the customer’s
business.
Specialists may be within or outside your organisation, and they may be
insurance experts or other professionals. Some of the specialists you may use
include:
• underwriters
• experienced colleagues in similar fields to your own
• medical professionals—e.g. doctors, surgeons, medical specialists
• paramedical staff—e.g. psychologists, physiotherapists, chiropractors
• loss control specialists—e.g. fire protection engineers.
The following case study is an example of when specialist help could be used.
Case study—DXY Insurance
Kwok Lim, an authorised representative of DXY Insurance, has been asked to
quote on the insurances for a factory. Information on the manufacturing
processes is vague, so Kwok arranges for an insurance surveyor to inspect the
factory and give him a report.
In this case study, the specialist is the surveyor and the report will provide
Kwok with essential information for making sound decisions about risk
assessment. Once Kwok Lim has a clear idea about the risk exposures of the
customer, he can then prepare advice about the types of insurances they need
in order to provide the appropriate cover.
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Self-help question 2.4
What kind of specialists could provide information to help you make a
decision about the following insurance applications?
1 Amy Ng has recently bought an old warehouse that she wants to convert
into apartments. She approaches you for advice on insuring the property.
2 Wu and Zhan Shu have been looking forward to retirement. They buy an
ocean-going yacht with the intention of sailing around the coast. They
approach you for advice on a total insurance plan for their trip.
An answer to this self-help question is provided at the end of this section.
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2.7 Presenting solutions
As an insurance professional, you understand the details of your
recommendations. It is your job to make sure that your customer understands
them equally well. Explaining your solutions is a vital part of providing
advice to customers—perhaps the most important part of all, because
misunderstandings can be expensive and damaging to the customer, to you
and to your organisation.
Presenting solutions to customers is a three-stage process that involves:
1 Recommending appropriate policies
2 Confirming with customers that their needs have been met
3 Gaining your customers’ commitment.
Your aim is to demonstrate to your customers that the solutions you are
offering have met their identified needs. If any needs have been overlooked,
now is the ideal time to discover it, rather than later when a claim is
presented. If this part of the process is handled well then the last stage,
gaining agreement from customers, flows more smoothly.
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The written report
A written report is your opportunity to present your recommendations in a
clear and unambiguous way. While reports will differ in details, essentially
they should contain the following key elements.
Customer’s present situation
This section contains a summary of the customer’s present position and
expressed needs. You should highlight in your report any particular problems
or concerns the customer has raised and show how you have addressed them.
Insurance needs
This section of the report sets out clearly your understanding of the
customer’s goals and their particular insurance needs and objectives. This is
where you explain how the solutions and products you suggest will meet
those needs.
Products
This is the section where you give full details of the products you believe will
meet the customer’s needs and objectives. You should outline the benefits and
limitations of each product clearly, and include the pricing structure.
It is also important to disclose the impact of key aspects of your
recommendations, rather than simply explain the features of the products.
You have an obligation to make full disclosure of the terms and conditions of
each product. You should also explain what the customer would be required
to do in order to put the recommended program into effect.
It is usual to recommend a number of options to the customer as a basis for
further discussion and negotiation. For PAS insurance, if your organisation
does not offer products that meet the customer’s needs, you may be able to
suggest life insurers or other organisations. Customers appreciate
independent advice that shows you are interested in their welfare and not
just your own.
Disclaimer
In evaluating the customer’s situation and devising solutions, you may find
that there are areas of uncertainty or gaps where information is unobtainable.
In these cases, you must draw on your own expertise and make educated
guesses or assumptions. This is natural in dealing with risk products and
unforeseen circumstances. However, it is important to include in your report
a disclaimer explaining where you have made any assumptions or
estimations, so the customer is aware of them. However, a disclaimer is not
necessarily going to prevent liability for giving negligent advice.
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Explaining the report
In delivering your report, you should guide the customer through its key
aspects. It is good practice to take them through the written report, checking
that the facts are accurate and ensuring the customer understands all aspects
of the recommendations.
This is the customer’s opportunity to ask questions, express any concerns, ask
for clarification and so on. It is also your chance to ensure there are no
misunderstandings. Once you have done this and you and the customer are
both satisfied with the report, you should seek the customer’s confirmation
that they understand the recommendations then record this with their
signature.
When offering customers advice about solutions to their requirements, you
must:
• comply with all statutory regulations
• ensure the information you provide is consistent with your organisation’s
guidelines
• act within your authority levels
• refer customers to specific reference material, such as the policy wording,
to explain a particular cover or procedure
• rephrase your sentence, if customers do not understand what you are
saying the first time
• be polite
• admit when you do not know an answer (then try to find out the answer)
• be patient and do not hurry customers
• show respect and do not talk down to customers
• use plain English and avoid jargon. Every industry has its own specialised
technical terms. This can be useful when talking to someone else in the
industry but can confuse customers. The more clearly you explain
products and services, the more chance you have of acquiring and
retaining customers’ business, plus obtaining personal references to
potential customers.
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2.8 Negotiating the solution
In helping your customer to make a decision, you need to maintain
professional standards of objectivity, self-control and clear communication.
Conflicts or misunderstandings may arise, particularly in relation to:
• pricing—the solutions may be too expensive for the customer
• charges—fees may appear unjustified
• policy limitations—the suggested solutions may not cover the full extent of
the customer’s perceived needs
• change of circumstances—the customer’s situation may have changed.
It can help if you try to anticipate these types of objections and come
prepared with alternative suggestions. At all stages of the negotiation,
maintain simple, non-technical language and explain the terms and
conditions of the products as clearly and fully as you can.
2.8.1 Confirmation
When you have reached an agreement on the appropriate solutions, you
should confirm the customer’s agreement in writing. It is customary to
include a ‘customer acceptance and authority to proceed’ section at the end of
your written report. The customer signs a statement, acknowledging that they
have read and understood the report and they agree to the suggested
solutions. For example:
I acknowledge that I (name of customer) have read and understood the
report prepared by (name of insurance professional). I affirm that the
information upon which the recommendations are based was provided to me
and is full and accurate.
I accept the recommendations made in the report and give authority to
(name of insurance adviser) to proceed with implementing the proposed
plan. I have been fully informed and understand the terms and conditions of
the proposed plan and I accept them in providing this authority to proceed.
Both you and the customer must sign and date this declaration. It is important
evidence, confirming that the customer has understood the
recommendations and accepted them, and it gives you authority to go ahead
with the plan and prepare the full documentation.
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2.8.2 Interim cover
There may be times when you have to provide customers with interim cover.
In Australia, the Insurance Contracts Act defines an interim contract of
insurance as ‘…a contract of insurance that is intended by the insurer:
• to provide temporary insurance cover, and
• to be replaced or superseded by another contract of insurance;
• whether or not the contract is evidenced by a document of the kind
usually known as a Cover Note.’
Interim cover can be presented to customers as:
• a cover note, written by the insurer and signed and dated by the insurer
• a placing slip, prepared by a broker but signed and dated by the insurer.
Regardless of how interim cover is presented, it must contain:
• the major aspects of the cover required
• any special enhancements or restrictions
• the period of the cover
• the signature of the insurer’s representative.
Interim cover is usually issued for a specified period of time only. At the end
of the interim period, cover will cease unless the information needed to
finalise the ongoing contract is received by the insurer.
2.9 Completing the documentation
Your next task in the process is to implement the recommendations. This
involves:
• preparing and completing the application/proposal forms and other
documents. The customer must sign and date the application form at key
points. You should take the customer through the forms for final checking
before signing
• submitting the signed documents for office processing—this includes
underwriting the completed and signed forms and processing payments
• issuing the policy and certificates.
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The seller of the policy may not be an underwriter and may not underwrite
the risk or issue the policy. However, it is important to let the customer know
that these processes will happen, and when they can expect them to be
completed.
You should make sure that the policy documents are provided to the customer
promptly, together with a letter confirming the cover. Standard letters usually
advise the customer to read the policy documents carefully and they include
details of how the customer can lodge any queries or complaints. In Australia,
they also provide details of any cooling-off period that applies.
Records of the dispatch of these documents must of course be kept, and most
organisation’s systems generally do this automatically. If a dispute should
arise, proof that the customer has received the policy documents (and a letter
encouraging the customer to read them and ask questions if required) is vital
protection for your organisation.
2.9.1 Customer records
Most insurers store and maintain records electronically. Electronic records
allow you to readily send information around the country and overseas.
Records must be stored securely (whether they are paper-based or electronic)
and be protected from loss. They must be kept for a minimum period of time
in accordance with your internal standards or relevant government
regulations.
Internal audit requirements and the level of activity normally experienced on
older files will determine the length of time your organisation keeps both
paper-based and electronic copies of documents and files.
The key reasons for maintaining internal records and documents are:
• to satisfy legal, taxation and organisational requirements
• to provide information necessary for the effective management of the
business
• to satisfy customer requests for information.
To meet these requirements, it is important that you keep full and accurate
records of all contact with customers and third parties. A customer policy file
is usually created and all relevant documents are stored there. The file should
include:
• record of first contact, including details of the first interview
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• fact finder/needs profile documents (signed)
• reports of any specialists consulted
• any reference material you used to develop your recommendations
• copy of the written report, including the customer’s sign-off
• customer’s signed authority to proceed
• proposal form/application form (signed)
• any correspondence, including letters, telephone contact, emails, and
online communications.
There is also legislation governing the privacy of your customers’ personal
information, and you are obliged to abide by this legislation. The Privacy Act
(New Zealand) and the Privacy Amendment (Private Sector) Act (Australia)
have established certain consumer safeguards, making it illegal to give out
personal information about your customers.
It is important to update and monitor your customers’ files regularly,
particularly in relation to any changes in customers’ situations. That is part of
your follow-up responsibilities.
Activity—Customers’ files
1 List the type of documents your organisation requires you to keep in your
customer’s files.
2 What are the implications of not keeping these documents?
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2.9.2 Following up
As an insurance professional, you will be keen to provide first class after-sales
service. This is an opportunity for you to maintain that rapport that you
worked so hard to establish in the first place. You should let the customer
know what follow-up you intend to provide—e.g. whether annual reviews, or
half-yearly, quarterly or more frequent contact.
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Reasons for contact include:
• to check for changes in customer’s personal details or circumstances
• to inform the customer of important changes that may affect them—e.g.
changes in legislation, organisation structure or personnel, etc
• to handle any customer complaints or queries—keeping in mind your
obligations under any industry codes or legislation
• to offer new opportunities or products. Be aware, however, that many
customers may not appreciate being marketed to, and you should seek
their agreement before proceeding. In Australia, you need to be aware of
the provisions for hawking restrictions contained in the Corporations Act
2001 in this regard.
Thorough follow-up should help prevent complaints or disputes from arising.
Activity—After sales service
1 What type of after-sales service does your organisation offer its customers?
2 How often do you generally contact your customers, and in what format?
3 What is your organisation’s policy for marketing new opportunities or
products to customers?
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2.10 Customer feedback
The final step in the process of providing quality service to your customers is
seeking and responding to feedback.
Customer feedback is information provided by customers about any aspect of
your organisation that is important enough to pass on. This can include your
organisation’s systems, procedures, image and employees.
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Insurers that take notice of their customers have an opportunity to re-shape
their services, product offerings and systems to better meet their customers’
needs.
This does not mean that your organisation’s systems need to be changed
simply because some customers do not like them and have taken the time to
tell you. Customers do not always have sufficient knowledge of the total
operation to comment fully; or they might not be objective because the
particular system or procedure they are commenting about might have
disadvantaged them.
Still, feedback is important, and it is important that you gain a full
understanding of:
• the value of feedback
• how you might get feedback, and
• how to respond to feedback once it is given.
2.10.1 The value of feedback
Customer feedback is often the principal tool for gathering information
about:
• the competitiveness of the policies being marketed to customers
• the effectiveness of the systems and procedures in place at the point of
sale, for policy amendments, renewals and claims assistance
• how staff and service are performing and how service delivery systems are
functioning.
This information is a valuable tool in measuring customer perceptions of
organisational performance.
2.10.2 Obtaining feedback
The simplest form of feedback, and the one most often overlooked, is the
countless number of comments made by customers to employees.
Internal mechanisms often do not combine well to capture and use feedback
effectively, and some existing recording and response mechanisms could be
improved.
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Customer feedback can be obtained in a number of different ways, and your
organisation may use all or some of those listed below.
• Ask customers questions when they ring or call to arrange a new policy or
amend an existing one. This type of feedback can help to determine the
most appropriate product offerings for particular customers.
• Make follow-up telephone calls to customers after they have experienced
a claim:
− Your organisation benefits because valuable information can be
gathered about the effectiveness of the systems and procedures involved.
− Customers benefit if they still have some small matters outstanding in
relation to the finalisation of their claim.
• Institute formal research programs to determine the success of the service
delivery mechanisms. Companies find customer feedback from research
to be particularly beneficial as it is gathered and collated by independent
people and their findings are considered to be more objective.
2.10.3 Responding to feedback
You may not always have the opportunity to respond to feedback; however,
the following points can be used as a guide to handling customer feedback.
• Ask fact-finding questions to clearly establish the nature of the concern.
• Listen carefully to what customers are saying and use the appropriate
customer feedback documentation to record details of the conversation.
• Treat complaints as feedback, by:
− expressing your regret that the situation has occurred, and
− empathising with the customer.
• Explain:
− your organisation’s attitude to recording and responding to customer
feedback, and
− what you will do to attend to any immediate problem.
• Thank the customer for the feedback and be sure to ask if there are any
other matters that need to be referred or discussed.
The feedback obtained from customers is usually:
• formally acknowledged in a letter that includes an indication that:
− all feedback is welcomed
− feedback is used to improve service delivery and the range and type of
products offered by your organisation.
• collated and referred to when the product offerings are being examined to
ensure they meet the demands of the market.
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2.11 Dealing with complaints
No matter how hard you try to establish and maintain positive, ongoing
relationships with your customers, there will be times when these
relationships are strained. We are talking here about being confronted with
complaints. Your organisation will be judged by how you handle these
situations.
Let’s now look at ways to deal with complaints, in the first instance, with a
view to a satisfactory outcome for both customers and your organisation.
2.11.1 Controlling the situation
You should try to take control of any interaction with a customer over a
complaint—especially when customers are angry or talkative and want to
explain in vivid detail the problem they are experiencing.
However, controlling the situation does not mean talking over the customer
and not allowing them to express their concerns, or jumping to conclusions
about the issue before they have finished.
By taking control, you are saving time and moving the discussion towards a
solution. It is important to note that ‘taking control’ does not mean forcing
customers to accept your point of view—it means getting from the ‘problem’
stage to the ‘solution’ stage as quickly as possible.
Some useful strategies for dealing successfully with complaints include:
• being positive
• taking responsibility
• providing a solution.
Let’s now look at these strategies in a little more detail.
Being positive
Customers who approach you with a complaint might be angry, disappointed,
embarrassed or anxious. So you need to be positive, to encourage a co-
operative relationship.
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While the following examples of how to encourage good customer relations
might seem like common sense, they can be forgotten when you are under
stress. It is always useful to stop and think about them if you feel that a
customer is becoming angry or upset. You can encourage customer co-
operation by:
• expressing empathy
• expressing an interest in their particular complaint
• making eye contact
• using open, friendly body language
• listening carefully—e.g. check that you understand what they have said
by summarising their statements and repeating them back
• acknowledging the problem/complaint—show that you understand by
saying things like, ‘I see what you mean’, or, ‘Yes, I understand the
problem’.
• staying relaxed—e.g. do not get defensive or angry, and do not take the
complaint personally.
Taking responsibility
An effective way of taking control is to take responsibility for the complaint
and let the customer know that you are going to do something about it.
If you do this then you have to make sure that you follow up on any promise
to help—customers want more than a smile and an apology. Lack of action
can lead to further complaints. Taking action includes:
• getting further information
• giving advice—this could be as simple as giving instructions on how to
complete a form and/or how to avoid a similar problem in the future
• initiating a formal complaints process (if the complaint might take some
time to resolve). This could happen when the solution to the problem will
be expensive and requires further investigation.
One of the most important things to remember when responding to
complaints is that customers particularly dislike the attitude described as
‘following the rule book’. Customers do not want to hear about what you
cannot do and why you cannot do it. They do not want to know about
internal rules, policies, regulations, restrictions, limited resources. They do
not want to be told there is nothing you can do. Customers want service!
Wherever possible, you need to be flexible in searching for an acceptable
solution (you can only do this within the limits of your authority).
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If your organisation guidelines limit what you can do in a certain situation,
you need to make it clear that you will refer the matter to your supervisor,
manager or a senior colleague. You then need to follow the matter up as
quickly as possible with the customer.
Providing a solution
The ultimate aim of being responsive is to come up with a solution to the
problem. While it will not always be possible to solve complaints, even a
partial solution may go a long way towards satisfying a customer.
Organisations that do not solve customers’ complaints are short-sighted. It
might cost a little extra to solve a complaint quickly; however, the cost in
terms of lost customer loyalty and poor reputation is often far greater than
any short-term saving.
Ideally, problems should be resolved in as timely and non-litigious a manner
as possible, while respecting the rights of the customer. The customer should
be informed of any decisions and the reasons for them, and negotiations, if
required, are carried out with the claimant or their representative.
Problems that cannot be resolved in this way are referred to external
conciliation services.
2.11.2 Difficult customers
There are some customers whose complaints are unreasonable or whose
complaints are justified but whose manner is aggressive and rude. These
‘difficult’ customers are often the hardest to deal with.
When dealing with a ‘difficult’ customer, you should follow the steps we have
just outlined for dealing with any customer who has a complaint, in the first
instance. However, there are some further techniques that you might find
useful:
• avoid a conflict spiral
• empathise with the customer
• refer on to another capable person.
Let’s look at each of these in more detail.
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Avoiding a conflict spiral
When customers are angry and aggressive, it is easy to fall into the trap of
responding with anger and aggression. However, often this kind of response
escalates the conflict by increasing the customers’ anger, and so on.
It is important to be aware of this problem so that when you feel your anger
rising, you can stop, take a deep breath and calm down. Once you are calm,
you have a better chance of communicating with the customer and getting a
clearer idea about their particular complaints.
It is important to remain objective. By using skilled questioning techniques,
you can encourage customers to do the same.
Empathising
Empathy involves making statements that show you understand the other
person’s position, reaction and feelings. It is a powerful way of reducing the
level of a customer’s anger.
Often customers are angry, not simply because they have not got what they
wanted but because they feel that their problem is not understood. By
showing empathy, you are showing that you do appreciate their situation.
You can show customers empathy by making statements like:
• ‘I can imagine that was very frustrating.’
• ‘I can see/hear that you are angry and I understand your position.’
• ‘I know it must be very annoying.’
Referral
If, after all your best efforts, you cannot resolve or deal with an angry or
abusive customer, you should refer the matter to your supervisor, manager or
a senior colleague. The advantages of a senior person dealing with the
customer are as follows:
• Sometimes the customer will calm down because of being referred to
someone more ‘important’.
• Supervisors should be more experienced and have greater knowledge
about what can or cannot be done for the customer.
• Supervisors should have more authority to make decisions, arrange for
compensation, or take other remedial action.
• Supervisors should be aware of the types of customer’s particular staff are
unable to handle. They can then arrange for suitable staff training.
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A good way to remember the main points of complaints handling is to think
‘Triple A’.
Triple A complaints handling
Acknowledge
• Listen actively to customers.
• Acknowledge that they have a right to query, complain or inquire.
• Listen with empathy and try to see the situation from their position.
Apologise
Do not hesitate to apologise for any problem experienced by your
customers. You are not admitting that it was you who did the wrong
thing but, rather, acknowledging that the service provided was not
satisfactory.
Action
• Take steps to resolve problems initially.
• Follow up with customers later to ensure that a satisfactory
resolution was achieved.
Dealing with customers entails gathering and storing information that may
be required for future reference. Comprehensive and efficient records can
also help when dealing with customers who have lodged a complaint or with
whom your organisation has a dispute.
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2.12 Formal dispute handling
As we have just discussed, when customers make complaints they are giving
your organisation an opportunity to solve their problems, and every effort
should be made to do so. However, in some circumstances, the employees
involved cannot resolve the complaint or dispute. Other steps have to be
taken to investigate and resolve them.
Establishing that a dispute exists
The first step is to establish that a dispute exists. You need to identify the
problem and the steps already taken to try to resolve it. The disputed issues
should then be clarified with all parties, and you should inform the customer
of the organisation’s obligations, procedures and timeframes.
Investigating the dispute and determining action to
be taken
You should then collect and review all information from prior dealings with
your customer and undertake further investigations if necessary. Determine
the action to be taken by considering the facts, legislation, company
procedures and policies, and industry codes of practice. Set timeframes and
keep the customer informed of progress.
Complaints versus disputes
There is an important distinction between complaints and disputes:
• Complaints are an expression of dissatisfaction with a request for the
complaint to be remedied. Complaints are, in the first instance, handled
internally by the insurer concerned.
• Disputes are defined as unresolved complaints.
In Australia, the Insurance Ombudsman Service (IOS) (formerly the Insurance
Enquiries and Complaints Scheme) is a national dispute resolution service
developed to handle enquiries and complaints and to resolve disputes which
come within the terms of reference of the service. Only when a resolution
cannot be found between the insurance organisation and the insured will the
IOS be an appropriate forum for determination of the dispute.
In New Zealand, the Insurance and Savings Ombudsman acts as an
independent service for resolving insurance and savings disputes of a
domestic and/or personal nature. Commercial clients need to pursue any
unresolved disputes through formal arbitration means.
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2.12.1 Internal dispute resolution (IDR)
Complaints and disputes are first handled by means of an organisation’s
internal dispute resolution procedures (IDR). Let’s look at the organisations
that handle disputes in Australia and New Zealand.
2.12.2 The IOS (Australia)
The following diagram illustrates the agreed process that must be followed by
insurers in Australia.
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If customers are unhappy with the outcome of your organisation’s IDR
decision, you should advise them to lodge the dispute with the Insurance
Ombudsman Service (IOS).
The IOS operates on two levels.
1 The first level provides customers with:
• advice in relation to their enquiry, and
• assistance in resolving complaints of any nature by conciliation with
their insurance organisation.
2 The second level provides an impartial alternative to litigation if a claims
dispute remains unresolved following an insurer’s IDR process or review.
Other points relevant to the scheme include the following:
• Customers are not bound by the determinations of the panel, referee
or adjudicator and retain their right to take legal action against the
insurer.
• The dispute handling arrangements have been put in place to benefit
individuals, not corporations.
• Third parties to a claim may also access the scheme (for a small fee) for
disputed claims up to RMB18,000.
• All participating insurers must agree to the procedures to be followed
for resolving disputes.
• Determinations made by the panel, referee or adjudicator are binding
on insurers provided the claim is within the monetary limits of the
IOS scheme.
• The scheme is funded by the participating insurers and is provided at
no cost to policyholders of participating companies.
The formal dispute resolution process of the IOS is shown in the following
diagram.
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The following case study provides an example of the type of case heard by the
IOS.
Case study—Accident policy
A farmer took out an accident policy that covered death caused by violent,
accidental, external and visible means. He was involved in a single vehicle
accident when his car left the road and hit a tree. He was taken to hospital
where it was found he was suffering from a broken collarbone, arm and
several ribs. He also had concussion and a fractured skull. After an overnight
stay in hospital, and despite medical advice to the contrary, he signed himself
out of the hospital and returned home, where he died soon afterwards.
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The administrators of his estate claimed under the policy, which contained a
condition that on the happening of any of the events (including death within
90 days of an accident) the insured must seek and follow medical advice.
Section 54 of the Insurance Contracts Act gives the insurer the power to
refuse to pay a claim if this is not done. Legal opinion was that no claim
would be payable by the insurer.
The case went to court, where the judge held that the event that resulted in
death was covered by the policy and that the condition requiring the insured
to seek and follow medical advice was unable to be complied with because
the insured died. So the judge ruled that the policy must respond.
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2.12.3 The ISO (New Zealand)
The Insurance and Savings Ombudsman Scheme (ISO) is independent and
impartial, and was established to resolve disputes between consumers and
insurance or savings organisations that are part of the scheme.
The ISO only considers complaints about domestic and personal insurance or
savings services provided by life, health or fire and general insurance and
savings organisations in New Zealand. It does not consider complaints
involving amounts of money over RMB600,000 or commercial policies or
services provided to businesses.
The ISO can be used only if:
• a complaint is not resolved by following the organisation’s internal
complaints procedure, or
• the claimant has not heard from the organisation after one month from
making the formal complaint, or
• the matter has not been resolved within three months from the claimant
submitting a formal complaint, or
• the customer has received a letter of ‘deadlock’ from the insurance
organisation and a complaint is made to the ISO within two months from
receiving this letter. (The letter must inform customers of the two-month
period. If it does not, the time limit can be waived.)
In looking at disputes, the ISO must be fair to both sides, abide by the law, and
have regard to good insurance practice.
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The ISO scheme has been structured to ensure the independence of the ISO
from the insurance and savings industry. The ISO Commission and the Board
are not permitted to have any involvement in the ISO’s consideration of
individual complaints, nor can they know the details of any case.
The formal dispute resolution process of the ISO is shown in the following
diagram.
Source: www.iombudsman.org.nz
The following case study is a summary of an actual ISO case.
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Case study—Failure to pay by renewaldate
The dispute
Mr Se failed to pay the premium for his motor vehicle policy by the due
renewal date. After the renewal date, ProActive Insurance (P) sent Mr Se a
statement referring to the outstanding premium. During this time, Mr Se had an
accident and made a claim to P for the damage. P declined the claim because, at
the time of the accident, the policy was not current because the premium
hadn’t been paid. Mr Se argued that the policy was still in force and that P’s
practice of accepting and backdating late premium payments reflected this.
The ISO’s consideration
At law, no positive action needs to be taken by an insurer to lapse a policy.
However, if a policy was found to be in existence at the time of the loss, non-
payment of premium was not fatal to the contract.
The ISO Case Manager considered that all of P’s previous conduct could be
looked at to determine whether P had made a representation to Mr Se,
regarding the status of the policy.
• On a previous policy, P allowed Mr Se to pay the premium after the expiry
date and had backdated the policy to the expiry date.
• P had previously advised Mr Se a policy had been cancelled, some time
after the renewal date, because the premium had not been paid. The
cancellation was not in accordance with the policy provisions and,
therefore, suggested there was a policy in existence to cancel.
• P had sent Mr Se a statement for the outstanding premium more than
3 months after the policy expired. Mr Se relied on this representation,
as he did not seek insurance cover from another organisation to ensure
cover was continuous.
Accordingly, the ISO decided P could not deny the existence of the policy
after the expiry date. It was also considered that section 9 of the Fair Trading
Act may apply, in that P’s inconsistent practice in respect of policy renewals
could mislead or deceive an insured. The complaint was upheld.
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2.12.4 Finalising the dispute
Once the dispute has been heard by the external dispute resolution body, all
outcomes of the dispute resolution should be recorded and all parties advised
promptly and clearly, including the right to review the decision. Any
documentation required by legislation, regulations, and codes of practice
should be prepared and the decision of the external dispute resolution body
attended to, as appropriate. Finally, documentation should be completed
according to legislation and company procedures.
Activity—Dispute resolution schemes
If you have access to the internet, go to either:
• the IOS website at www.insuranceombudsman.com.au, or
• the ISO website at www.iombudsman.org.nz
• the ASIC website at www.asic.gov.au
1 Review material relevant to complaints and the resolution of insurance
claims disputes. (On the ASIC website you will find the relevant Policy
Statement (PS 165) by following the ‘Publications’ link.)
2 Note down the key points regarding:
• the aim of the scheme
• the charges users of the scheme might incur
• any restrictions or limitations of the scheme.
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Self-help question 2.5
List at least seven key points that effectively summarise the content of this
section.
An answer to this self-help question is provided at the end of this section.
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2.13 Answers to self-help questions
Self-help question 2.1
The following is a list of some of the ways communication can take place in
your office:
Verbal—face-to-face conversations, telephone calls, meetings
Non-verbal—body language
Written—faxes, emails, letters, memos, newsletters, reports, procedures,
guidelines.
Self-help question 2.2
There is no right or wrong answer to this question. The following is a
suggested answer only.
The allegation of a false answer by the customer on the proposal form could
allow the insurer to successfully deny the claim (in Australia, under section
13 of the Insurance Contracts Act.)
However, under Australian law, the insurer would have to prove that its
normal underwriting practice would be to refuse to insure the customer at all
if it had known the true state and prognosis of the skin cancer. In New
Zealand, the customer’s non-disclosure alone may be sufficient to allow the
insurer to deny the claim.
Self-help question 2.3
1 You will have your own ideas about what are the most important areas of
dispute. You may have included any or all of the following issues in your
answer:
• whether Jiang’s history of back problems constituted a pre-existing
illness
• whether Jiang should have known they would be relevant to the
insurer
• whether Jiang’s current injuries were caused by the accident or were in
fact related to previous back problems
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• whether the insurer would have limited the policy if it had known
about his pre-existing back problems
• whether Jiang was properly and fully informed of his duty to disclose
under the policy.
2 Documents that provide important evidence include:
• the policy wording
• the fact finder
• the representative’s record of the meeting in which the policy and the
duty of disclosure were explained to Jiang
• Jiang’s medical records.
3 To avoid the dispute arising in the first place, you could have:
• asked Jiang specific questions about any pre-existing illnesses
• given examples of relevant information
• drawn on your knowledge of common health problems in Jiang’s line
of work as a plant operator to ask specific questions about back and
knee injuries
• guided Jiang through the forms to ensure he didn’t forget any details
• explained the consequences of Jiang’s failure to disclose any relevant
information.
Self-help question 2.4
1 It would be useful to find out how sound the building structure is and
what fire risks are like. Useful specialists here could include architects,
building engineers, risk surveyors or earthquake engineers.
2 You might want to get a specialist medical report to check their health, or
a boat builder or marine engineer to check the yacht.
They will need to make sure their personal home/contents/cars, etc are
correctly insured in their absence.
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Self-help question 2.5
The key points to this section that may have listed include:
• Customer service is vital to the success of your business.
• Effective communication skills are necessary to establish and maintain
relationships with your customers.
• Effective communication involves good listening skills, questioning skills,
presentation skills and non-verbal behaviours.
• When offering advice to customers, you must always adhere to legal and
organisational requirements.
• Developing and maintaining personal competency is essential.
• Identifying and analysing customers’ needs are essential to the provision
of personal advice.
• When gathering information from customers, you should use the
appropriate tools—needs profiles, checklists, fact finders and specialist
assistance (where necessary).
• A well written and presented report is essential for communicating your
advice to your customers.
• You should always seek written confirmation from your customers that
they understand the terms and conditions of their insurance contracts.
• After sales service is a way of monitoring changes in customers’
circumstances, answering any queries and maintaining established
rapport.
• Customer feedback is a valuable tool for improving customer service and
should be encouraged.
• It is essential that complaints are acted upon quickly to prevent future
disputes.
• Records must be stored securely and kept for the relevant period of time.
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Section03 Pers
onal a
ccid
ent a
nd s
ickness in
sura
nce p
roducts
Contents
3.1 Introduction 248
3.1.1 Learning outcomes 248
3.2 What products are available? 250
3.2.1 Personal accident insurance 252
3.2.2 Personal accident and sickness insurance 256
3.2.3 New Zealand 260
3.3 Answers to self-help questions 266
249
249
251
253
257
261
267
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Section 3
Personal accident andsickness insurance products
3.1 Introduction
In Section 2 you were introduced to personal accident and sickness insurance
(PAS). In this section we look at PAS products in more detail. Most general
insurance products provide cover in the event of damage or loss to property.
PAS insurance, on the other hand, is an insurance against death or disability
of the person.
When selling PAS insurance, you are required to provide financial advice as
part of your negotiations with the client. This requires special procedures,
knowledge and skills.
It’s important to understand that this class of insurance cannot be handled by
a Tier 2 adviser. ASIC have decreed that only Tier 1 advisers are to provide
advice in this class of business. You will appreciate the reasoning for this
when you consider the financial implications which may be faced by an
insured who has received incorrect personal accident advice. The following
case study highlights the importance of this point.
3.1.1 Learning outcomes
When you have completed this section, you should be able to:
• explain the purpose of personal accident and sickness insurance
• explain why personal accident and sickness insurance can only be
handled by a Tier 1 adviser
• explain the various personal accident and sickness products.
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Case study—Jailen Pang
Jailen Pang is a self-employed gardener. He asks his insurance adviser to
arrange personal accident insurance for him. Two months after the policy
commences, Jailen suffers a serious back injury and the prognosis for a return
to work is not good. He may be entitled to a payout for total and permanent
disability. His insurance adviser arranged a personal accident policy through
a general insurer. Under such policies, weekly benefits are paid to a maximum
of 52 or 104 weeks. There is no cover beyond this period. If Jailen receives a
capital benefit payout for total and permanent disability then his weekly
benefits will cease. Had his adviser arranged salary continuance cover
through a life insurer (i.e. income protection) then Jailen’s weekly income
would be insured up to normal retirement age.
Personal accident and sickness products are unique in that this type of
insurance is sold by both life and general insurers. Advisers need to be skilled
in knowing which product is appropriate for each client’s circumstances.
Incorrect advice can result in significant adverse financial consequences for
the client.
○ ○ ○ ○ ○ ○ ○
3.2 What products are available?
Many products that provide protection in the event of accident or sickness
are offered by both the life insurance and the general insurance industries,
and there is some overlap of the two sectors. In this section we will
concentrate only on those personal accident and sickness products offered by
the general insurance sector.
Personal accident and sickness policies fall into three main categories:
1 Personal accident
2 Personal accident and sickness
3 Income protection (sold through life insurers).
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3.2.1 Personal accident insurance
General insurers offer a limited form of benefit payable in the event of death
by accident (not through sickness, suicide or any other cause). A commonly
used definition of accidental is:
…caused by violent, accidental, external and visible means.
There are usually various activities excluded in the policy—for example:
…racing of any kind other than on foot, various aerial activities and other
obviously hazardous activities such as snow sports, mountain climbing,
motor cycling and others listed in the policy exclusions.
Accidental death policies are designed to provide a lump sum payment to
cover the costs associated with the sudden, accidental death of the client.
This is usually referred to as a ‘capital benefit’. Such costs might include:
• funeral expenses
• legal costs
• outstanding debts
• taxes
• interim family support.
However, costs associated with death are not the only reason for the cover.
Many clients look on this type of insurance product to provide a large death
benefit for their spouse and family at a much cheaper premium than full life
cover under a life policy. Another advantage is its flexibility: because the
policy is renewable each year, the need for it may reduce or vanish,
depending on the financial circumstances of the individual.
This type of cover is not an ‘indemnity’ cover, as it is not possible to calculate
the worth in money terms of the life of an individual. For this reason, the
amount of cover is often governed by the client’s capacity and willingness to
pay the premium. Because the policyholder must die by accident for the
policy to take effect, medical reports and checks are not normally required.
Such policies are usually renewable to age 65 on annual payment of the
premium. However, it is important to remember that, unlike some life
insurance policies, personal accident policies are cancellable, and renewal is
not guaranteed.
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Dismemberment and serious impairment
Most policies also provide cover for serious impairment. A table of
impairments (table of maims) sets out lump sum entitlements for specific,
defined disabilities such as loss of the use of one or two limbs, loss of sight in
one or both eyes, etc. The loss must be through an accident, not disease.
Total and Permanent and Disability (TPD)
This type of cover is sometimes sold as part of accidental death and
dismemberment policies. It provides for a lump sum to be received by the
policyholder in the event of a catastrophic accident that leaves him or her
permanently and totally disabled.
Disability is measured in relation to the type of work the policyholder is now
unfit for. Definitions of TPD range from total inability to perform any work
whatsoever, to inability to perform the policyholder’s usual work or
profession. These definitions are crucial to the way in which the policy will
respond to an event. Misunderstandings about the exact definition of
‘disability’ are a common source of conflict following a claim. It’s vital,
therefore, that the policyholder clearly understands what the different
categories of disabilities mean, and what the implications are in the event of
such an accident.
Weekly benefits
Personal accident policies also have the option of a weekly benefit. This
provides interim support to the injured person if he or she is unable to earn
an income due to an accident. Cover can be for 52 or 104 weeks from the date
of the accident. Many policies specify that the amount payable will be
reduced by the sum of weekly compensation payable under workers’
compensation, Transport Accident Commission (TAC) or similar legislation.
What is not covered
Accidental death insurance (unlike some life insurance products) does not
provide:
• cover for death by any cause other than an accidental cause
• non-cancellable security for the policyholder
• cash payments on maturity of the policy, whether the policyholder dies or
not
• regular, periodical cash payments
• medical expenses.
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Fraud indicators
A very large sum insured in relation to the client’s apparent lifestyle may be
an indication of possible fraud or non-disclosure of potential hazards. For
example:
• death or injury threats received by the client
• hazards arising from ‘fringe occupations’ carried out by the client. These
are supposedly legal occupations which may have risks associated with
them that were not disclosed on the proposal form. ‘Fringe occupations’
are usually flagged in the general insurer’s underwriting guidelines.
Requests for very high levels of sums insured for weekly incapacity should
also be investigated to ensure that the applicant can prove the level of
earnings justifies the cover sought.
3.2.2 Personal accident and sicknessinsurance
A personal accident policy can be extended to provide some cover for the
consequences of sickness. However, death cover as the result of sickness is
not provided for under a personal accident and sickness policy. This is part of
a life insurance contract.
The sickness cover provided under personal accident and sickness insurance
extends to weekly benefits resulting from sickness. Usually, there is a waiting
period of five to seven days from the date on which the insured person first
sought medical treatment for the sickness, before the benefit will be payable.
Some insurers offer an option to extend this waiting period in return for a
lower premium. As with accident weekly benefits, this benefit is also payable
for either 52 or 104 weeks.
Both accident and sickness weekly benefits will cease to be paid once the
insured person becomes entitled to a capital benefit (for example, total and
permanent disability).
Some insurers include in their sickness cover an amount for total and
permanent disablement as a result of sickness. However, this may be limited
to, for example, paralysis of two limbs or blindness.
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Income protection insurance
Income protection insurance is generally offered only by life insurance
companies and, as such, does not fall within the scope of this resource.
However, it is important to note that there are significant differences between
income protection and personal accident and sickness policies. Some of these
differences are as follows:
• Income protection cover does not provide any capital benefits at all, even
for accidental death or dismemberment.
• Benefits under an income protection policy can be payable from 52 weeks
to retirement age, depending on the customers requirements—premium
levels obviously alter accordingly.
• An income protection policy is non-cancellable by a life insurer; however,
a general insurer can decline to offer renewal of a personal accident
policy, or offer renewal with restrictions on the cover, following a
previous claim.
Limits and regulations
In Australia, personal accident and sickness and income protection insurance
attracts a substantial number of complaints. Most arise from misunderstandings
about the circumstances in which the policy will respond. For example, some
policies do not cover workers who are not in full-time work at the time of the
accident. Waiting periods apply to payments, and they cut out after a set time.
Limits like these must be explained in full to the client before they sign any
agreement.
Pre-existing conditions
For all types of personal accident and sickness insurance, known pre-existing
medical conditions are usually excluded. The proposal form usually contains
an authority signed by the customer to obtain details from the customer’s
medical providers if the underwriter needs to clarify the position on pre-
existing conditions.
The issue of customer disclosure of pre-existing medical conditions, and
whether or not a condition is regarded as existing at the time the policy was
taken out, can be problematic. It is in your interests, as well as those of your
customer, to clarify these issues before any agreement is signed.
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3.2.3 New Zealand
The Accident Compensation Corporation (ACC) covers accidental death,
bodily injury and weekly compensation for accidents. There is a continued
demand for additional personal accident and sickness insurance to provide
protection for:
• self-employed people who may want higher limits than ACC provides
• employers who want to provide additional benefits to their employees
and/or directors
• cover for sickness because ACC does not cover this contingency.
It is also important to remember that many organisations arrange declaration
overseas travel policies that can include coverage for personal accident and
disablement while the employees or other insured persons are travelling
overseas.
Case study—Shen Ke
Shen Ke is the manager of a chain of five chemist shops, employing 35 staff
and with a business annual turnover of RMB210 million.
Shen Ke, aged 38 years, has a very experienced pharmacist, Mr Lei, aged 58
years, who manages Shen Ke’s largest shop and whose contribution to the
day-to-day management of the business is vital. Mr Lei is paid a salary of
RMB600,000 per year plus additional benefits such as superannuation, car
allowance and the like.
Should Mr Lei be involved in an accident and be unable to attend work for
any period of time, Shen Ke would need to engage a locum pharmacist to
assist him in running the business and managing Mr Lei’s shop.
Mr Lei has already indicated to Shen Ke that he intends to retire from full-
time work in two years, giving Shen Ke sufficient time to find and train a
suitable replacement.
Shen Ke has approached you, as his insurance adviser, to seek your advice on
the most appropriate way to take out personal accident and sickness
insurance for both himself and Mr Lei.
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Shen Ke wishes to have cover to protect himself against loss of income for
any extended period, medical expenses arising from either an accident or
sickness, and he also wants to leave a lump sum for his wife in the event of
his death.
For Mr Lei, Shen Ke wishes to arrange cover to pay the cost of a replacement
locum chemist should Mr Lei be incapacitated for any significant length of
time. Shen Ke would want to continue to pay Mr Lei during any such period
of incapacity and he does not want the business to pay for the replacement
locum at the same time as continuing Mr Lei’s payments.
What advice would you provide to Shen Ke in relation to selecting the most
appropriate insurance policies to meet his requirements?
Response
You would recommend the following to Shen Ke:
A Mr Lei is issued with a personal accident and sickness policy issued by a
general insurer.
The reasons for this advice would be:
• The period of cover is only required for two years, until Mr Lei
actually retires from full time work. After that, Mr Lei would have no
need for income replacement, as he will not be income earning. There
is, therefore, no need for a guaranteed renewable insurance policy, nor
payment for a long term period of incapacity.
• Shen Ke would have hired and trained a replacement for Mr Lei in that
period. The benefits payable under the policy would be used to meet
the cost of the replacement locum chemist during that period, and the
necessity to engage a replacement locum chemist would disappear
gradually over that time.
B Shen Ke is issued with:
• an income protection insurance policy issued by a life insurer in
respect to weekly incapacity suffered as a result of an accident or
sickness, and
• a personal accident policy issued by a general insurer in relation to the
death cover Shen Ke is seeking.
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The reasons for this advice would be:
• The period of cover required for Shen Ke will be much longer, as he
will be continuing in the business for many years to come. Therefore,
the advantage of the guaranteed renewable nature of this contract
would no doubt appeal to Shen Ke.
• Shen Ke would want cover for incapacity to extend to a much longer
period than the maximum of 104 weeks offered by a general insurance
policy. The income protection policy allows much longer extended
periods of weekly benefits cover.
• As the income protection insurance policy would not grant cover for
death, Shen Ke’s desire to provide a lump sum cover is met by the
general insurance policy.
C You will need to advise Shen Ke that:
• Neither of the recommended policies will provide cover for medical
expenses. Such cover will need to be met by either the public health
system or the private health insurance system.
• The death benefit cover provided by the general insurance policy will
only cover death by accident; death by sickness is excluded from
cover.
○ ○ ○ ○ ○ ○ ○
Self-help question 3.1 (Australian students)
Briefly explain the disclosure requirement obligations in Australia which
enable you to meet your legal obligations under the Corporations Act:
a) What disclosure documents would you provide to Shen Ke and Mr Lei?
b) What is the purpose of these disclosure documents?
c) When would you give Shen Ke and Mr Lei those disclosure documents?
An answer to this self-help question is provided at the end of this section.
○ ○ ○ ○ ○ ○ ○
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Self-help question 3.2
List five key points that effectively summarise the content of this section
An answer to this self-help question is provided at the end of this section.
○ ○ ○ ○ ○ ○ ○
3.3 Answers to self-help questions
Self-help question 3.1 (Australian students)
a) You would be required to provide Shen Ke and Mr Lei with a Financial
Services Guide; and Statement of Advice.
b) The purpose of these disclosure documents is as follows:
• The FSG helps retail clients decide whether to obtain financial services
from the providing entity. The FSG is designed to give customers
information about the parties they are doing business with, and any
special relationships between the various insuring parties.
• The Statement of Advice (SoA) helps a retail client understand, and
decide whether to rely on personal advice (provided by the licensee or
authorised representative).
c) You would give Shen Ke and Mr Lei these documents at the following
points:
• Give the FSG before the financial service is provided.
• Give the SoA at the time you are providing the personal financial
advice.
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Self-help question 3.2
The key points to this section that you have listed should include the following:
• There are three categories of policies:
− personal accident
− personal accident and sickness
− income protection.
• Personal accident and personal accident and sickness policies are sold by
general insurers whereas income protection policies are sold by life
insurers.
• The differences in the covers and payments between personal accident/
personal accident and sickness policies and income protection policies
are that there are limits to the covers provided by way of policy
exclusions, time period excesses for sickness incapacity claims, pre-
existing medical conditions and others.
• There are legal requirements for disclosure notices to be provided to
applicants for this type of insurance.
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Appendix
Contents
4.1 Appendix 1 Insurance Contracts Act Regulations 272
4.1
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Appendix 1
Insurance Contracts ActRegulations
The following text is taken from the Insurance Contracts Act Regulation
‘Home Buildings’.
Division 2 Home buildings insuranceDivision 2 Home buildings insuranceDivision 2 Home buildings insuranceDivision 2 Home buildings insuranceDivision 2 Home buildings insurance
1 01 01 01 01 0 Prescribed eventsPrescribed eventsPrescribed eventsPrescribed eventsPrescribed eventsThe following, except in so far as they are excluded by regulation 11, aredeclared to be prescribed events in relation to a contract referred to inregulation 9:(a) the destruction of, or damage occurring to, the home building on the site,
being destruction or damage that is caused by or results from:(i) fire or explosion;(ii) lightning or thunderbolt;(iii) earthquake;(iv) theft, burglary or housebreaking or an attempt to commit theft,
burglary or housebreaking;(v) a deliberate or intentional act;(vi) bursting, leaking, discharging or overflowing of fixed apparatus, fixed
tanks or fixed pipes used to hold or carry liquid of any kind;(vii) riot or civil commotion;(viii) an action of a person acting maliciously;(ix) impact by or arising out of the use of a vehicle (including an aircraft or
a water-borne craft);(x) impact by:
(A) space debris or debris from an aircraft, rocket or satellite;(B) an animal (other than an animal kept on the site or a domestic
animal);(C) a falling tree or part of a tree; or(D) a television or radio aerial that has broken or collapsed; or
(xi) storm, tempest, flood, the action of the sea, high water, tsunami,erosion or land slide or subsidence;
(b) accidental damage that is breakage of any fixed glass, fixed shower base,fixed basin, fixed sink, fixed bath, fixed lavatory pan or fixed cistern;
(c) loss by theft, burglary or housebreaking;(d) the insured or a member of the insured’s family ordinarily residing with the
insured incurring a liability as owner or occupier of the home building topay compensation or damages to some other person.
1 11 11 11 11 1 ExclusionsExclusionsExclusionsExclusionsExclusionsThe following are excluded:(a) depreciation;(b) wear and tear, rust or corrosion;(c) the action of insects or vermin;(d) destruction or damage, or the incurring of a liability as mentioned in
paragraph 10 (d), as a result of:(i) the expropriation of the home building;(ii) war or warlike activities;
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(iii) the use, existence or escape of nuclear weapons material, or ionizingradiation from, or contamination by radioactivity from, any nuclearfuel or nuclear waste from the combustion of nuclear fuel;
(iv) the use of the home building for the purposes of a business, trade orprofession; or
(v) tree lopping or felling by the insured or a person acting with theexpress or implied consent of the insured; or
(e) destruction or damage intentionally caused, or a liability as mentioned inparagraph 10 (d) intentionally incurred, by:(i) the insured; or(ii) a member of the insured’s family ordinarily residing with the insured;or a person acting with the express or implied consent of any of them;
(f) where the home building is unoccupied and has been unoccupied for acontinuous period of more than 60 days—destruction or damage occurringotherwise than as mentioned in subparagraph 10 (a) (ii) or (iii) or (vii) to (xi)(inclusive), or the incurring of liability as mentioned in paragraph 10 (d);
(g) destruction of, or damage occurring to:(i) a free-standing or retaining wall (whether or not part of the home
building), or to a gate or fence, as a result of a storm or tempest;(ii) an electrical machine or apparatus as a result of the electric current
therein; or(iii) any property as a result of it undergoing a process necessarily involving
the application of heat;(h) theft by a person ordinarily residing with the insured at the time of the
theft;(j) in the case of destruction or damage that is caused by or results from
bursting, leaking, discharging or overflowing of fixed apparatus, fixed tanksor fixed pipes used to hold or carry liquid of any kind or impact by atelevision or radio aerial that has broken or collapsed—damage to theapparatus, tanks or pipes or the television or radio aerial, respectively;
(k) the incurring of a liability as mentioned in paragraph 10 (d):(i) to the insured or a member of the insured’s family ordinarily residing
with the insured; or(ii) as a result of:
(A) the insured; or(B) a member of the insured’s family ordinarily residing with the
insured;or a person acting with the express or implied consent of any of them,using a vehicle (including an aircraft or water-borne craft) on the site.
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Questionnaire
It is important for the Institute to gather feedback on this learning module
as part of the continuous improvement process for our learning materials.
All information is confidential and will only be used for improvement
processes.
Please indicate the degree of your agreement with each of the following
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the appropriate number on the scale.
Module title: FSI401 Serving the Customer
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Learning Module
The module covered the subject 5 4 3 2 1
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The self help questions in the module 5 4 3 2 1
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valuable aid to my learning
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Assessment
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The assignment provided a good 5 4 3 2 1
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learning materials
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learning experience with the Institute
FSI401
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Please fax this questionnaire to the
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