Polyps, a competitor's threat and HK$3.6 million of commission-driven replacement
Ken, 45, is applying for a HK$6 million life policy with a critical illness rider; the annual premium is HK$150,000 and the tied agent would earn 60% first-year commission on it. Four years ago, after a medical examination, Ken bought a HK$2 million whole-of-life policy with a critical illness rider, which he now says he will cancel to help pay the new premium. During the fact-find he mentions that his father and elder brother both had colon cancer before 50, and that a colonoscopy two years ago found and removed two polyps, with no follow-up since. He asks the adviser not to mention the polyps because they were benign and already treated, and says that otherwise he will place the case with a competitor "who doesn't ask so many questions". He has not read the existing policy documents and cannot recall its premium or its surrender value.
1. What must the adviser do about Ken's request to withhold the polyps, and what follows from each available course of action?
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The adviser cannot be a party to non-disclosure. Insurance contracts rest on the duty of disclosure; representing a material medical history as absent is a misrepresentation that the adviser would be actively assisting.
Consequences to explain to Ken, plainly:
- If the polyps and family history are not disclosed, the insurer may avoid the policy, and a critical illness claim at the worst possible time could be refused. Premiums may not be returned.
- The adviser's own position is at risk: this is a conduct breach, not a technicality, and it threatens the agency and the licence.
- The competitor's "fewer questions" is not a lower standard; it is a higher risk that the claim is declined.
Courses of action:
- Full disclosure to the underwriter, with the colonoscopy report and the recommendation that Ken obtain his follow-up. The likely outcomes are a loading, an exclusion for colorectal conditions, or standard terms - Ken then chooses on accurate information.
- Ken refuses. The adviser declines to submit an incomplete application, records the refusal and the reason, and does not take the case.
- Ken proceeds with the competitor. The adviser documents that the risk was explained and that the client was referred back to full disclosure, and does not coach him on what to say.
The conversation should be framed around claim outcomes, not around the insurer's interests - the person who loses if this goes wrong is Ken and his family.
2. Assess the proposed replacement of the existing policy, including the effect of the commission.
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Missing facts come first. The adviser cannot assess a replacement without the existing policy's premium, sum assured, surrender value, guaranteed versus non-guaranteed elements, riders, surrender charges and any loan. Ken cannot recall them; obtaining them is the adviser's job, not the client's.
The decisive factor is insurability. Four years ago Ken was underwritten at standard rates. He now has two removed polyps, a family history of early-onset colon cancer and no follow-up. Replacing means surrendering cover he already holds at a price he can no longer obtain, in exchange for a policy that may carry an exclusion for exactly the condition he is most likely to claim on. A replacement that leaves him worse insured against colorectal cancer is not an improvement, whatever the premium comparison shows.
Commission conflict. 60% of HK$150,000 is HK$90,000 in the first year, and it exists only if a new policy is written. That is a direct conflict with a recommendation to keep the existing policy, which may be the correct advice. It must be disclosed in writing before any recommendation, and the comparison must be shown on a like-for-like basis: cover per dollar of premium, guarantees, exclusions, and total cost over ten years.
Likely structure: retain the existing policy, remedy the gap with a top-up only if a real shortfall is quantified, and use a rider or a separate term policy for the additional need. If replacement is genuinely justified, it must be justified by numbers and insurability, not by the new policy's features.
3. Describe how this case should be documented and escalated.
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File contents, chronologically:
- The fact-find record, including the exact words used about the polyps, the family history and the missed follow-up.
- Ken's request to withhold information, recorded in his words, with the adviser's refusal and the reasons given.
- The disclosure explanation: avoidance risk, claim denial risk, and the adviser's own obligations.
- The replacement comparison: both policies' premiums, sums assured, surrender values, guarantees, exclusions, and ten-year total cost.
- The commission disclosure - HK$90,000 first-year, plus the ongoing commission - signed and dated before the recommendation.
- The alternatives presented: keep existing, top-up with term, rider, do nothing. Each with cost and consequence.
- The client's decision, in his own acknowledgement, whichever way it goes.
Escalation: notify the agency's compliance function before submission, not after. This is a case with a written client request to misrepresent, a contested replacement and a large commission - all three are exactly what a later complaints file will turn on. If Ken proceeds with the competitor, note the date and content of that conversation. If the underwriter asks for the colonoscopy report, provide it in full; do not summarise it selectively. The professional standard is not "did the policy get issued" but "could a third party reconstruct, from this file, why each recommendation was made".