The adviser effect on insurance disclosures

An examination of personal and medical disclosures made by retail customers to a commercial life insurer reveals that customers screened for insurance with the assistance of a financial adviser considerably under-disclose by comparison to when screened by the insurer. The pattern of under-disclosure is consistent across all areas. We also find that adviser-screened customers are far more likely to be offered standard terms especially for smokers, whereas insurer-screened customers are more likely to be offered modified terms or be declined insurance. We argue that the adviser, who receives a commission when a contract is accepted, may be motivated to influence disclosures in order to increase the chance of an accepted contract in affordable terms and therefore maximize own returns. By doing so, the adviser exposes the customer to legal remedies whereby the insurance company may cancel the contract or refuse a claim. Our results support the findings of various enquiries that call for an end to commission-based sales.