The Investment Savings and Insurance Association (ISI) chief executive Vance Arkinstall says sadly there are cases where existing policies have been replaced and several years down the track when a claim arises it is found that the new policy doesn't provide the cover expected.

He says the new Business Replacement Rules and Reinstatement guidelines aim to provide increased transparency and disclosure so that life insurance policy owners who are considering replacing an existing policy with a new policy make an informed decision for the right reasons.

However, Hudford Parker Financial Services manager Giles Thorman has a few concerns about the new guidelines including the form pointing out that whomever is selling the new policy is likely to be paid for it.

"I am sorry, but since when have I been a registered charity, who expects me to work for nothing?"

He says the new changes imply that the broker is not really acting in the clients best interests.

However, Arkinstall says the change is relevant under the new financial advisers regime with a move to total transparency and disclosure.

He says it is not a requirement to tell the client of remuneration but the point is there so the client knows the adviser gets paid, giving them the opportunity to ask further questions.

Thorman is also concerned about point six which states: "I/We acknowledge that a copy of the completed form will be given to both the old and new insurer".

He believes that if the client signs it, they are effectively waiving their rights to privacy.

"My suggestion to everyone in the industry is to put a line through this clause and have the clients initial it which will mean a copy of the Replacement Business Advice cannot be sent to the old insurer as to do so would be an infringement of the clients privacy."

Arkinstall says the ISI believes there is merit in the old insurer getting to see the form so they have the opportunity to change any incorrect information that has found its way to the client.

He says if a client didn't want the old insurer seeing the form they could crossit out or refuse to answer that point.

Thorman says there are also other areas that need to be signed off by the client, namely that they have received a copy of a brochure that explains their old policy may be better than the new policy and that advises the client that the old insurer may well contact them just to check up and make sure that the broker has not "ripped them off". 

"I shall be very interested to hear from the insurance companies some of whom state categorically that the broker owns the client base and the relationship is primarily with the broker.

"Here we have the possibility of someone sitting in the head office of an insurer with limited sales experience, likely very limited knowledge of other policies available in the marketplace and almost certainly infinitely less knowledge of the marketplace as a whole, contacting the client and calling in to question the recommendations of their broker."

Arkinstall says it is an opportunity for the old insurer to correct misunderstandings, not to limit the activities of advisers. He says it is to ensure the consumers decision is based on full and appropriate information.

"The new guidelines have been developed with the input of ISI members who are supportive of the changes," he says.

"We are operating in a  new world and confidence and trust is important - this is a step to help build that."