What is ‘Best Interests Duty’? Aside from a fiduciary duty, for financial advisers giving personal advice there is also a statutory duty to act in the best interest of the client and to give priority to their interests.
This means that the emphasis of any personal advice is wholly in meeting the objectives, financial situation and needs of the client. Does this include an assessment of their current budget, cash flow and outgoings? Does it include the client’s health and wellness objectives, and costs related to that? Yes, in all likelihood.
The best interests duty is based on the notion of ‘reasonableness’. Advisers need to make reasonable inquiries to obtain information and conduct a reasonable investigation into financial products that are relevant to the client’s circumstances. Clearly then, the type and features of any insurance policy recommended should be based on the client’s personal insurance needs and circumstances. However, many insurers are now also promoting a healthy lifestyle by offering discounts or a reward system. There is an argument to viewing these life insurance health rewards as a savings opportunity and a means of getting the policy the client requires to fit their budget. But is that all?
If there are a number of appropriate products available to meet personal insurance needs, and one in particular also has benefits that help to achieve other needs, goals or objectives, then that one is likely to be in their best interest.
A quality health and wellness program attached to life, disability or health insurance can allow the client to take an active role in managing their premiums, a key consideration where affordability and/or cash flow restrictions are indicated during the client data collection and analysis.
Car insurance contracts often reward customers for a ‘no claims’ history. Now, those seeking personal insurance can gain access to better than standard rates as a reward for their healthy behaviours – in some cases up to 20% – a significant change in the marketplace and very relevant to price sensitive clients.
For those clients where affordability is less the issue, and reaching savings or retirement goals has priority, then savings made through health and wellness programs that provide discounts and rewards can be reallocated to make further investments.
Engagement in health and wellness programs linked with personal insurances has also been shown to significantly reduce lapse rates. For example, AIA lump sum policies with the AIA Vitality program attached reflect an average lapse rate reduction of about 40%. Reduced likelihood of lapse means increased likelihood that the insurance contract will still be intact if and when a claim is made. It helps ensure the objectives of the client will continue to be met.
Programs that utilise systems such as setting ongoing goals to maintain motivation, and offering more frequent and tangible rewards for demonstrating healthy behaviours, have well-documented results. The client is rewarded not only for healthy weight or fitness but for healthy eating, completing health checks and undertaking preventative health measures. In this way, clients are not only insuring themselves if the worst happens but are investing in their own long-term wellbeing.
There may be any number of reasons that a health and wellness program is appropriate to a client’s relevant circumstances, including affordability and premium discounting, improving and/or maintaining health, and rewards or access to discounted pricing on lifestyle expenses and goals.
Before making a recommendation for a life insurance product, an adviser needs to compare policies and review the benefits, features and price side-by-side, all in the context of the client’s financial situation and relevant needs, goals and objectives. It’s worth remembering though, relevant considerations may be more wide-ranging than we have traditionally thought.