7 internet sales

We are frequently asked by the industry for our views on internet sales. We have not, to date, had to consider any case where the nature of such a sale has been a relevant matter at dispute. With the increasing emphasis on internet sales, however, this can only be a matter of time.

In principle the internet has a number of advantages as a sales channel. It can allow a potential policyholder to review and compare competing policies, at leisure. It can also ensure both parties have access to a common and contemporary record of the transaction and of the information they exchange. A well-designed site allows for common questions to be answered clearly, accurately and consistently.

However, there are at least as many potential pitfalls. In practice, the guidance available to policyholders is often limited. There is little evidence that they are alerted to differences in policies other than those of price, except for a general exhortation to study policies carefully. Instead, many sites – particularly those operated by intermediaries – are advertised for the convenience and speed of transaction. This, taken together with site design, can reinforce a view that the policies quoted are largely identical for all practical purposes except price.

Industry codes on sales apply as much to internet sales as to other types. It remains important to draw customers’ attention to the main features of the policy and to be in a position to advise on its suitability. It would be a matter of concern if firms interpreted this as simply requiring customers to tick a general acceptance box, rather in the style of certain software licence agreements. While the matter would need to be considered in a test case, our initial reaction is that such a restricted interpretation of industry code requirements is unlikely to be supported by an ombudsman.

The internet provides a good opportunity to highlight both the major points in a particular policy and significant variations between different policies. We suggest this might best be achieved without the need to move between pages and, ideally, in an interactive way, which requires customers to confirm that their attention has been drawn to each significant policy feature. Customers should be able to read the full policy being offered, on-line, before completing the purchase. Carefully designed sites could also help provide customers with reliable and focused advice on the implications of those policy differences. We hope the industry will take up the challenge of producing informative and customer-focused sites.

Of course, the ready availability of competitive quotations is of general benefit for customers. However, this may result in some difficulties for a small number of them. Having completed the required information to the best of their ability, these customers may seek a cheaper quotation by re-visiting the site and providing revised information. Sometimes this may be an entirely genuine attempt to provide, as accurately as possible, the information the insurer has requested. In other cases, however, it may amount to deliberate non-disclosure of material facts.

A well-designed system should be able to track such cases and ensure customers are directly alerted to the consequences of non-disclosure. Some insurers might argue that those policyholders who are foolhardy enough to misinform them face the risk that, should a claim arise, the insurer will repudiate it for non-disclosure. However, where the insurer (or an intermediary) is aware that a policyholder revised information before purchase, it seems to me it is duty bound to make clear the consequences of non-disclosure.

Any case that might come to us on these points will, of course, need to be considered on its own merits. However, it seems likely that we would be looking for evidence from the firm of:

• the overall design of the site at the time of initial application;
• the questions asked of the customer (and options for any standard answers);
• the steps the customer had to take to complete the transaction, including the highlighting of major policy features;
• any revisions by the policyholder to the information provided; and
• any warnings given to the customer.

Insurers will wish to note these points in their own complaint handling. If they do not have a clear record of the site design, information given by the customer, and policy wording at the time of the application, we will need to rely heavily on the customer’s recollection of the application process.