What is Fair Treatment of Customers?

Fair Treatment of Customers, or FTC, is the responsibility of all carriers, MGAs, offices, and advisors, to ensure that their customers’ interests come first in all aspects of the insurance business, including product development, marketing, and sales. In fact, FTC is required to be front and centre throughout the entire life cycle of an insurance product from product design to fulfillment of contractual obligations.

Your responsibility as an advisor

Advisors play a critical role in FTC by making sure that customers are provided with accurate, clear, transparent, and sufficient information before, during, and after the sale. This includes proper disclosure, fact-finding, needs analysis, illustrations, discussion notes and issuing a reason why letter, all of which must be thoroughly documented. The process of documentation is essential to ensuring FTC as it proves compliance to regulators, provides customers with clarity, and supports advisors in their service and in the event of a misunderstanding or dispute.

It is also the responsibility of the advisor to ensure customers understand complex insurance products by explaining terms and features in plain language, similar to how a salesperson would explain technical computer features to a non-expert. Using plain language helps to provide FTC while also building trust and ensuring customers purchase products suited to their needs rather than simply making a sale. To learn more about using plain language, check out our article series If they can’t understand it, they won’t buy it, Don’t lose the message in a sea of words, and On a need-to-know basis.

The importance of documentation

Documenting your interactions with your customers is one of the key factors in ensuring FTC. Proper documentation helps avoid issues like lack of proof when it comes to product suitability, a common problem identified in regulatory audits. Proper and complete documentation includes regulatory-required documents as well as additional documents such as replacement declarations and written explanations.

A complete customer file should contain all relevant documents supporting your recommendations, including fact-finding, needs analysis, disclosure, reason-why letter, policy delivery receipt, discussion notes, illustrations and ongoing service records covering the entire policy life span. Taking things one step further, the best documents are dated and signed by you and the policy owner, providing evidence of being used in your practice, during the sale. Remember, if you did not document or keep a record of an action or interaction, it is as if it did not occur!

The FTC Approach

The FTC Approach focuses on transparency and ensuring that recommended products are suitable and appropriate for customers based on needs-based sales practices, demonstrating the rationale behind recommendations and the ongoing service provided.

It is important to remember that the FTC Approach not only applies to new customers, but also to any customers you may acquire, such as orphan customers or those who are part of a purchased book of business. These customers may not be “new,” but they are new to you, and they should be treated as such by updating disclosures and fact-finding to confirm that their existing products still meet their current needs. By doing this, you will not only ensure FTC, but this process will demonstrate attention to detail and build trust, particularly if they have been passed around to multiple advisors in the past.

Key principles of FTC

As a final takeaway, there are three key principles to avoid conflicts of interest and ensure FTC compliance. They are:

• Always ensuring that the customer’s interests come before your own interests
• Always disclosing actual or potential conflicts of interest, fully and transparently
• Only recommend products that are suitable to the customer’s needs

Fair Treatment of Customers is the cornerstone of a compliant and successful business. By adhering to the principles of FTC, you will always prioritize your customer’s interests, maintain transparency, and be able to provide detailed and complete documentation. Treating customers fairly and documenting every step of the process builds trust, compliance, and sustainable business relationships.

To learn more about the art of influence, listen to our podcast episode, Fair Treatment of Customers with Adam Kulesza available at ivari.ca/podcast or wherever you get your podcasts.