RISK – Be fully covered with the right alliances

Difficulties in matching product features with client needs in complex areas of risk coverage like trauma mean advisers should seek specialist alliances, writes Pauline Forrester.

Risk insurance can be a minefield for advisers if they recommend policies to clients without having an in-depth knowledge of the myriad of products on offer in the marketplace.

Yet as society becomes more litigious, it's vital that advisers cover all their bases.

Bear in mind that in a recent court case in Melbourne, a terminally ill man successfully sued a large insurance company for $500,000 because his insurance adviser gave him inappropriate advice on his risk coverage.

The case shows that advisers run the real risk of being sued by disgruntled clients who only find out in the event of a claim that their trauma isn't covered by their disability policy or that their spouse's risk-protection package was inadequate.

Trauma policies are a good case in point, as they are usually very specific about what medical conditions they include or exclude. Moreover, they can vary greatly from insurer to insurer, so no single provider is likely to have a policy that will protect the client against every possibility.

One company's policy, for example, may include multiple sclerosis in the trauma cover, while another may exclude this illness but provide cover for something else, like blindness.

Moreover, trauma products are quite complicated and there are a huge numbers of different policies on offer in the marketplace.

Yet to guard against future litigation, advisers have to offer clients a good range of risk options and fully explain the shortcomings of any policy or protection strategy.

They must also take into account the client's family medical history. Increased risk factors, like the client's father dying of a heart attack in his early fifties or an aunt's battle with breast cancer, are important clues to the level of life or disability cover they should take out.

But although it's vital for advisers to ensure that their clients take out adequate risk cover, which may also include life and disability cover, the shouldn't necessarily feel pressured into issuing the policy themselves.

Unless they are prepared to become risk experts themselves, advisers would be better of aligning themselves with a good insurance broker or a reputable financial adviser who specialises in this area.

We at Zurich, for example, offer an introduction service within our network. This helps financial advisers find reputable risk specialists with whom they can form strategic alliances to provide the most appropriate risk cover for their clients.

<I>Pauline Forrester is risk manager, Zurich Financial Services Australia.