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Le Beau: Treasury and FSA need consistent approach to income protection

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I wonder whether the title of this article might be changed in a Freudian slip to Wither Income Protection!

If some people in the industry had their way, income protection would have withered further but despite some negative prognostications, there does seem to be a way forward for the product in 2012.

I am confining myself here to individual IP which has never caught the imagination but is a valuable product. If it did wither and die, it would say a lot of things about the protection industry – none of them complimentary.

A couple of threads may determine if the product will ever grow with the rush that many of us would like to see. In their anxiety to do things, the Government and the regulator can act at cross purposes and there is a need for some joined-up thinking that ensures we as an industry do not confuse action with clarity of thought and vice versa.

I have used this column to cast mild doubt on the likely effectiveness of the simple products’ debate. This has been initiated by the Treasury and Carol Sergeant has the task of taking the consultation forward. What constitutes “simplicity” in product terms varies enormously depending on whether you work in marketing, actuarial development or underwriting. Simple is meant to mean basic, good value products that are easy to buy and with complete transparency (I think). At the IPTF, while we cannot design products we can make sensible suggestions about the features that make products buyable.

Creeping in under my radar was the FSA/OFT paper on short-term IP. Many people (not least the banks) have been very bruised by the PPI debacle. The concept of PPI is excellent but has been kicked out of shape by pressure from distributors which has reduced, among other things, its value to the public, the ability to equate simplicity with value and the expectation that claims made in good faith will be paid. A good idea – and above all a need – has found itself prostituted because the perception of customer value got lost as the sales potential increased.

It is vitally important the Treasury and FSA develop a consistency of approach to simple IP that does not throw the baby out with the bathwater.

Bigger sales volumes will give us a wider spread of risk and, dare we hope, bolder but fair underwriting. Simple product terminology suggests a straightforward concept which the public understands and feels reassured by immediately and while the FSA paper flirts with benefit caps, I hope we can find a benefit structure that is sensible and useful rather than proscriptive.

We need a sleeker, much more buyable product and we need it soon. Let’s hope the powers that be do not get in each other’s way, our way and, above all, the client’s way in trying to produce it.

Peter Le Beau is managing director of Le Beau Visage

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Readers' comments (5)

  • I have to agree that IP is a much undervalued policy, it would be great to see more action to help increase it's understanding within the general publics perception - as advisers we can only do so much! A few companies have advertised on TV with some interesting results (Aviva and Downtown Abbey?), but any profile raising for IP is helpful. I just hope it doesn't get tarred with the PPI brush...

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  • Consistent approach? Treasury and FSA? ha, ha ha, ha ha ha!

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  • Well said Peter, you have it in a nutshell.
    You and every other stakeholder still have until Friday to respond to the FSA on this Guidance consultation. It will be time well spent if you do, to read the Product risk report and see if you can find any room for innovation within it.

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  • "Consultation"

    U avin' a larf Gov?

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  • The biggest problem with IP is its very high cost for the very people who want it most, namely those in Class 3 and 4 occupations. Those in white collar occupations are most likely to be covered by an employer-sponsored scheme, so it's mostly the Class 3 and 4 people who tend to approach IFA's for individual policies.

    Some of the Friendly Society policies offer premiums that are acceptable at outset, but they tend to be age banded and leap up incrementally every few years. They tend also to include nasty clauses that allow the insurer, at its own discretion, to switch off paying a claim, whilst Any Occupation eligibility definitions are virtually useless.

    Tax relief on premiums might help, but only a bit and, given the increasing trend of recent years for governments to cut off tax concessions on as many fronts as possible, such assistance is a pretty forlorn hope.

    And it isn't merely a matter of insurers not trying to be competitive. The claims experience for this Class of business makes it very difficult to write profitably.

    So from where are the "sleeker, more buyable" products of which Peter writes going to come? I don't see it. And, apart from anything else, neither the Treasury or the FSA are in the business of product design.

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