Insurance Sales, Ethics, and Professional Conduct
This domain tests ethical selling, suitability, disclosure, and the intermediary's duties. Questions cover needs analysis, commissions, conflicts of interest, rebating, twisting, churning, replacement, privacy, signatures, and premium handling.
Core rules
- Sales must begin with a needs analysis based on the client's circumstances, objectives, and affordability. The recommendation must be suitable, not merely profitable for the agent.
- Material information must be disclosed, including the nature of the product, significant exclusions, costs, and the agent's role and remuneration where required.
- Rebating gives part of the premium or commission to induce a sale and is generally prohibited. Twisting misrepresents an existing policy to induce replacement. Churning involves unnecessary replacement for commission.
- Replacement requires comparison and disclosure. The agent should show the disadvantages as well as advantages.
- Clients must authorize applications and changes. Signing blank forms or forging signatures is misconduct.
- Personal information must be protected. Premiums collected for the insurer must be handled promptly and separately where required.
Worked example
An agent recommends replacing an existing whole life policy with a new policy that pays a higher commission but increases the client's cost and restarts contestability. The agent must disclose the replacement, compare the costs and benefits, and determine suitability. If the replacement is not in the client's interest and the risks are hidden, the conduct is unethical and may breach replacement and market-conduct rules. The reasoning is that suitability and disclosure override commission incentives.
Traps that cost marks
- Treating a sale as product pushing rather than needs analysis.
- Hiding commissions or conflicts.
- Offering rebates to close a sale.
- Signing or altering client forms.
- Failing to disclose replacement disadvantages.