Client needs analysis step by step
The needs analysis is the foundation of an advisory conversation. It helps the advisor propose a solution that fits the client's situation and is a precondition for a sound recommendation. This guide breaks it into eight steps.
This guide describes general principles based on EU rules (GDPR, the ePrivacy Directive and the Insurance Distribution Directive). National law differs between countries, so check the rules in your country and your client's country. Your firm's own procedures and the rules that apply to you decide what is required; the guide is general information, not legal advice.
Why a needs analysis is done
In the EU, insurance distribution is governed by the Insurance Distribution Directive (EU) 2016/97 (IDD), which each country implements in its own law. In general, before a contract is concluded the distributor has to identify the client's demands and needs, provide pre-contractual information and justify the recommendation. Requirements are stricter for insurance with an investment element. Check the exact scope in your national rules and your firm's procedures.
- The client should receive an offer that matches their situation, not the most expensive product.
- The advisor should be able to explain why this solution is recommended.
- The conversation and its outcome are recorded so that they can be verified later.
Eight steps of a needs analysis
The client's situation may change the order, but do not skip any step.
Step 1: Preparation and opening
- Ask
- "May I introduce myself, explain in what capacity I act and how I am remunerated, and that I am entered in the intermediaries register? Then I will ask about your situation."
- Why it matters
- The client should know who they are talking to, whether the person is an independent intermediary or a tied agent, and that the answers serve the recommendation.
- Watch out for
- Do not start with a product. Do not leave remuneration and conflicts of interest to the end.
Step 2: Personal and family situation
- Ask
- "Who depends on your income? Do you have children, a mortgage, other commitments?"
- Why it matters
- Risks only make sense in relation to the commitments and people the client protects.
- Watch out for
- Ask only for data you really need and explain why.
Step 3: Income, expenses and financial reserve
- Ask
- "How large is your reserve and how long would it last if your income stopped?"
- Why it matters
- The reserve decides which risks the client can bear alone and which they want to transfer to an insurer.
- Watch out for
- Do not judge the client's budget. The aim is to understand options, not to cause guilt.
Step 4: Existing insurance
- Ask
- "Which contracts do you have and when did you last review them?"
- Why it matters
- A recommendation should start from what the client already has, so that cover is not duplicated and gaps do not appear.
- Watch out for
- Do not recommend cancelling an existing contract without explaining the consequences, such as lost entitlements or early termination charges.
Step 5: Risks, goals and priorities
- Ask
- "What worries you most? And what would you want secured first?"
- Why it matters
- Clients often do not realise where they are most vulnerable. Ranking priorities helps to propose a solution of reasonable scope.
- Watch out for
- Do not add risks the client did not ask about just because a product exists.
Step 6: The client's demands, needs and means
- Ask
- "How much can you set aside monthly for insurance without it being a burden?"
- Why it matters
- Distinguish what the client wants, what they need and what they can afford. The choice of product follows from that.
- Watch out for
- For investment elements, also find out knowledge, experience, time horizon and risk tolerance according to your firm's rules.
Step 7: The recommendation and its justification
- Ask
- "I suggest this option because .... The drawback is .... Do you agree it matches what we discussed?"
- Why it matters
- A recommendation must be understandable and tied to the identified needs, including fees, exclusions and alternatives.
- Watch out for
- Do not promise a return or an outcome that cannot be guaranteed. Provide the required pre-contractual information, including the insurance product information document where it applies.
Step 8: Record and follow-up
- Ask
- "I will summarise what we agreed and send it to you. When can we come back to it?"
- Why it matters
- A record with the reasons for the recommendation protects both the client and the advisor and makes later review easier.
- Watch out for
- A record must not be written up afterwards as a formality and must match what was actually said. Retention periods are set by law and your firm's internal rules.
The most common mistakes in needs analysis
Typical shortcomings in practice are these. Knowing them in advance helps.
- The analysis is filled in as a formality or only after the product has been chosen.
- There is no justification of why the recommended product suits the client.
- The advisor does not address existing contracts and gaps in cover.
- The client does not receive pre-contractual information in good time and in understandable form.
- The advisor's remuneration influences the choice of product without the client knowing.
How to practise the conversation
Needs analysis is the skill of asking questions. Practise it out loud with a client who answers incompletely or asks about fees and risks.
- Try asking open questions and stay silent until the client answers.
- Practise explaining remuneration simply and without defensiveness.
- Repeat the conversation with different client types: a family with a mortgage, a self-employed person, a senior.
Frequently asked questions about needs analysis
Is a needs analysis mandatory?
The EU Insurance Distribution Directive (Article 20) and the national laws implementing it generally require the distributor to identify the client's demands and needs before a contract is concluded and to justify the recommendation. The scope depends on the type of product. Check it in the applicable rules and your firm's procedures.
How long should the analysis take?
It depends on the product and the client. More important than length is that all necessary questions are asked and the client understands the recommendation.
What should go into the record?
The identified demands and needs, the information you based the advice on, the recommended product and the reasons, including the information you gave the client.
What if the client refuses to answer?
Explain why you need the information and respect their decision. Without enough information it may not be possible to recommend a suitable solution, and you should tell the client so.
Can I practise the analysis?
Yes. With DIRI AI you can practise discovering needs out loud with a voice client. The Free plan includes one call a day of up to 5 minutes.
Practise discovering needs before the meeting
With a voice AI client you can try asking questions and explaining a recommendation. The Free plan is free; a pilot is available for teams.