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Life Insurance and the Law. A layman's introduction
There are no laws in the UK that require a person to have life insurance. It’s an entirely voluntary
insurance. About 40% of the UK's working population are covered by life insurance either through
their own policy or via an arrangement through their employer.
So the simple things first. You have to be a UK resident in order to buy a life insurance policy from a
UK based insurance company. This is not a requirement laid down in UK law, but UK laws and tax
arrangements make it impossible for a UK based insurance company to offer insurance to anyone
other than a UK resident. But be aware that if, having taken out life insurance, you later live abroad,
your policy will be invalidated. Naturally, invalidation does not apply if you are on holiday but if you
have a short-term work assignment abroad you are well advised to inform your insurance
company before you go.
All UK Insurance Companies are subject to UK Corporate Laws. However, there are special regulations
that only apply to insurance companies. These control the value of the risks the companies take on in
relation to their financial reserves. These regulations are designed to ensure that your insurance
company will be in a position to pay if you claim.
The Data Protection Act 1998 is concerned with way all UK businesses store, safeguard and use the
data they collect about people. This is particularly important within the life insurance industry as the
companies store significant amounts of very personal information about you – including your age,
health record and life style. One of the key provisions of the Data Protection Act says that if a business
wishes to pass on your information for marketing purposes, the business collecting the data must tell
you of its intention and give you the opportunity of refusing permission for your data be used in that way.
Incidentally, all reputable web sites selling life insurance will have a “Privacy Statement” which tells you
how they handle your information and how it is used.
The Financial Services and Markets Act (2000) is the most important piece of legislation affecting the
promotion of financial services in the UK including life insurance. The Act is highly complex but is primarily
concerned with protecting you the customer. The implementations of the Act is overseen by the Financial
Services Authority (FSA). The FSA regulates all forms of the promotion of financial products and services
including the activities of financial and mortgage advisors in the UK. Their aim is to ensure you receive
clear professional advice that reflects your personal circumstances. They also ensure you have a route
to compensation should it be proved that you received inadequate or poor advice.
For the layman, the FSA's biggest impact is reflected in the advisors they talk to. The FSA seeks to ensure
that all financial advisors are trustworthy and competent which includes being well supervised and well
trained, and that any advice is given in your best interests. The FSA also ensures that you are given full
and accurate information about the products you are being advised to buy both before and after you
have bought them. They also closely oversee the organisations that actually create the financial products.
In fact everyone and every organisation giving financial advice in the UK must be authorised by the
Financial Services Authority.
However, the Act makes a distinction between financial products bought as a result of a recommendation
from a Financial Adviser and “Execution Only” business. Execution Only is where a customer is wholly
responsible for the selection of the investment and therefore the financial advisers' sole responsibility
is to process the purchase efficiently. Under Execution Only, the Adviser bears no responsibility for the
products suitability for the clients needs.
You should be aware that many of the web sites promoting life insurance operate on this Execution Only
basis. However, most web site operators provide extensive information to enable the client to make an
informed choice. Sometimes the information is published on the web site and sometimes provided during
a follow-up telephone call. Either way, within their Terms of Business the web site will have to tell you on
what basis they provide financial services and as part of your application, you will normally be required to
confirm that you have read those Terms.
Those Terms of Business will always include details of a complaints procedure. In outline, if a customer
wishes to complain, then the customer must detail the complaint in writing and send it to the Compliance
Officer for the business employing the advisor. That business then has to investigate the complaint and
reply to the customer in writing. If the Compliance Officer upholds the complaint, and the customer has
suffered a financial loss as a result, then the business must agree a financial settlement with the customer.
Ultimately, if the customer has suffered financial loss and cannot accept either the organisations’ conclusions
or their proposed financial settlement, then the situation can be referred to the Financial Ombudsman.
The Financial Ombudsman’s service is free to the customer and they are wholly independent.
The Financial Ombudsman’s decision is usually binding on both parties.
The other central piece of protection for the customer is the Financial Services Compensation Scheme.
This provides the customer with a level of protection if a financial organisation regulated by the FSA
becomes insolvent and cannot properly meet its financial responsibilities to its clients.
Postscript
The above information represents the legal aspects we think you will have found most useful.
The information is neither definitive nor exhaustive but is simply an introduction for the layman.
If you would like more detailed information relating to the regulation of life insurance companies,
insurance brokers, or financial advisers you should visit the Financial Services
Authority’s web site at: www.fsa.gov.uk
About the author:
Michael Challiner has 15 years experience in financial services marketing at senior level.
Michael now works as the editor of Brokers Online Life Insurance
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