FCA Handbook - ICOBS 6.4 Pre- and post-contract information: protection policies

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ICOBS 6.4 Pre- and post-contract information: protection policies

Application: what?

This section applies in relation to a payment protection contract or a pure protection contract except as otherwise stated.

Oral sales: ensuring customers can make an informed decision

(1)
If a firm provides information orally during a sales dialogue with a customer on a main characteristic of a policy, it must do so for all the policy's main characteristics.
(2)
A firm must take reasonable steps to ensure that the information provided orally is sufficient to enable the customer to take an informed decision on the basis of that information, without overloading the customer or obscuring other parts of the information.

(1)
A policy's main characteristics include its significant benefits, its significant exclusions and limitations, its duration and price information.
(2)
A significant exclusion or limitation is one that would tend to affect the decision of customers generally to buy. In determining what exclusions or limitations are significant, a firm should particularly consider the exclusions or limitations that relate to the significant features and benefits of a policy and factors which may have an adverse effect on the benefit payable under it. Another type of significant limitation might be that the contract only operates through certain means of communication, e.g. telephone or internet.

Policy summary

A firm must provide a consumer with a policy summary in good time before the conclusion of a pure protection contract.

Complaints and compensation information

In relation to a payment protection contract, a firm must provide a consumer with information about:

(1)
how the consumer can complain to the insurance undertaking and that complaints may subsequently be referred to the Financial Ombudsman Service (or other applicable named complaints scheme); and
(2)
the consumer’s entitlement to compensation from the compensation scheme (or other applicable compensation scheme), or that there is no compensation scheme, in the event where the insurance undertaking is unable to meet its liabilities;

in good time before the conclusion of the policy.

Payment protection contracts: importance of reading documentation

(1)
A firm must draw a consumer's attention to the importance of reading payment protection contract documentation before the end of the cancellation period to check that the policy is suitable for the consumer.
(2)
This must be done orally if a firm provides information orally on any main characteristic of a policy.

Price information: general

A firm must provide price information in a way calculated to enable the customer to relate it to a regular budget.

Price information is likely also to include at least the total premium (or the basis for calculating it so that the customer can verify it) and, where relevant:

(1)
for policies of over one year with reviewable premiums, the period for which the quoted premium is valid, and the timing of reviews;
(2)
other fees, administrative charges and taxes payable by the customer through the firm; and
(3)
a statement identifying separately the possibility of any taxes not payable through the firm.

Price information should be given in writing or another durable medium in good time before conclusion of the contract. This is in addition to any requirement or decision to provide the information orally. In the case of a distance contract concluded over the telephone, it may be provided in writing or another durable medium no later than immediately after conclusion.

Price information: premiums paid using a non-revolving credit agreement

(1)
This rule applies when a premium will be paid using a credit agreement other than a revolving credit agreement.
(2)
A firm must provide price information in a way calculated to enable the customer to understand the additional repayments that relate to the purchase of the policy, and the total cost of the policy.
(3)
Price information must reflect any difference between the duration of the policy and that of the credit agreement.
(4)
A firm must explain to a customer, as applicable, that the premium will be added to the amount provided under the credit agreement and that interest will be payable on it.

Price information: policies sold in connection with revolving credit arrangements

(1)
This guidance applies to policies bought as secondary products to revolving credit agreements (such as store cards or credit cards).
(2)
Price information should be given in a way calculated to enable a typical customer to understand the typical cumulative cost of taking out the policy. This does not require oral disclosure where there is a sales dialogue with a customer. However, consistent with Principle 7, a firm should ensure that this element of price information is not undermined by any information given orally.

Mid-term changes

(1)
Throughout the term of a policy, a firm must provide a customer with information about any change to:
1. (a)
  the premium, unless the change conforms to a previously disclosed formula; and
2. (b)
  any term of the policy, together with an explanation of any implications of the change where necessary.
(2)
This information must be provided in writing or another durable medium in good time before the change takes effect or, if the change is at the customer's request, as soon as is practicable provided the firm explains the implications of the change before it takes effect.

(1)
When explaining the implications of a change, a firm should explain any changes to the benefits and significant or unusual exclusions arising from the change.
(2)
Firms will need to consider whether mid-term changes are compatible with the original policy, in particular whether it reserves the right to vary premiums, charges or other terms. Firms also need to ensure that any terms which reserve the right to make variations are not themselves unfair under the Unfair Terms Regulations (for contracts entered into before 1 October 2015) or the CRA.