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Categories:Other,Protection

Advisers must play their part in boosting protection sales

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It is hard to predict the future of protection, not simply because of interference from Europe but also because so many curve balls are being thrown from different directions at the industry.

I am regularly asked for insights into the sector but it is hard when you are not entirely certain what you are looking at.

We may be at a strategic inflection point that will change the industry fund-amentally but the problem about strategic inflection points is that you only really recognise them retrospectively. As Mao Tsetung apparently said when asked if the French revolution had succeeded 200 years after the event: “It is too early to tell.”

I recently heard about some incredible terms being proposed for distribution deals. I firmly believe that without securing quality distribution you will not have a business but the level of commission demanded by some distributors makes it difficult to write business at a profit.

If distributors get too greedy (and I use this term advisedly) it reduces significantly the margins available to providers. If providers find their margins reduced this will inevitably impact on the reassurance terms they require.

In turn, the competitiveness of the reassurance terms means a very conservative underwriting approach has to be adopted to ensure business is profitable. If a cautious underwriting approach is adopted, it will mean more evidence is required, with the consequent delay this entails and ultimately more cases will berated or declined.

It is a frequent complaint of advisers that companies employ overly stringent underwriting standards. Perhaps my very simplistic explanation will indicate why providers feel they have to adopt the sorts of under-writing approaches they do and why so many cases are held up and ultimately fail to complete.

This is not a tirade against the protection adviser community but a plea for recognition that it has an important part to play in leping with the sale of business.

UK term rates are the most competitive in Europe and will probably continue to be so in spite of the effects of gender equalisation. There will be a limit to the amount of commission that can be sensibly levied.

The distributor is a key part of a chain that leads directly to a customer obtaining vital cover. No adviser or network must ever forget that cover can often be withheld or become uneconomic simply because a deal cannot be reached that suits all parties. It is worth bearing that in mind the next time you complain about one of your cases receiving inappropriate underwriting treatment.

Peter Le Beau is managing director of Le Beau Visage

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Readers' comments (3)

  • 1 Why should a provider write business at a loss? Doesn't the FSA have rules about a viable business model?
    2 I agree that some insurers are way too stringent on underwriting but, if they've shaved the rates too much, can you blame them?
    3 My anecdotal perception is that protection cover has been more difficult to sell in recent years, in spite fo the greatly reduced premiums. I wonder if part of that is that in almost giving away cover insurers inadvertently implying that it's of little worth.

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  • Great summary Peter. You missed out claims from the picture and the 5%-10% increase in CI claim payments will either erode margins and/or push prices up. Soft pricing, uw and claims and generous commissions is unsustainable in any insurance sector and at some stage a readjustment will occur.

    The current uw model for average size policies needs a complete revamp. Perhaps that is also the case for commissions and pricing too.

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  • I'm not so sure Peter's appraoch is the right one for the market. I've taken this rare chance to disagree with Peter at http://bit.ly/gescEZ

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