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Alan Lakey: Why ‘simple’ products means inferior

Consumers don’t need patronised with ‘simple’ products and will only end up with substandard products instead.

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As an ‘old school’ adviser I frequently chuckle to myself when I read about consumer access initiatives that the theorisers have developed after nineteen sub-committee meetings and the usual plethora of memo’s and sham consultations.

Each year’s new ‘big idea’ is a source of great mirth – although the advent of the MAS has degenerated from a regulator’s educational project into a sad joke, with the biggest laugh being on the industry which is forced to fund it.

However there are some proposals that fail to elicit a chuckle, in fact they provoke a sub-woofian growl and one of these is the simple products initiative, whose steering group was chaired by Carol Sergeant CBE.

This group is currently struggling with the design of simple protection products.

Now I am all for simplicity and there are numerous areas where complex product designs, reinforced by regulatory and other bureaucratic imperatives, serve to introduce layers of unnecessary hokum. Yet to these eyes protection does not seem overly high on the confusion ladder.

The group has, for the time being, given up on income protection and is focusing on the complexities of term assurance. One might reasonably believe that term life could not be simpler – you buy, we pay if you die.

It seems that a shuffle of bureaucrats (which is the collective noun) has decided that terminal illness, waiver of premium and guaranteed insurability options are terrifyingly confusing and to bolster the take up of such plans these mystifying features must be removed.

What exactly is the point? The view being espoused is that insurers will offer ‘simple’ products online and that confused consumers will clamour to buy these. Such thinking spawned the disaster that was stakeholder pensions which proved one of the largest nails in the saving for retirement coffin.

What evidence exists demonstrating that consumers do not buy life assurance due to perplexity? It defies all logic to imagine that this caucus of confused consumers has not approached an adviser/a bank/an online bucket shop to resolve this confusion. More likely any confusion rests with the theorisers.

Presumably these and other ‘simple’ plans will be marketed alongside the traditional confusing plans which to me seem, eh, confusing.

Will advisers sell such products if made available? Well the design is likely to reduce the product cost by 0.5 per cent or so but then again cost has never been the issue.

Imagine the shock horror headlines when a previously confused consumer develops a terminal illness and his ‘simple’ plan results in a declinature because it does not include it.

In short, simple is synonymous with inferior and I question why we believe that reducing the quality of a protection plan is seen as a way forward.

This seems a depressing waste of resource at a time when so much more could be achieved.

Perhaps some sub-committee of professional shirkers and eternal students can come up with a design for simple regulation.  Now that sounds like a plan.

 Alan Lakey is partner at Highclere Financial Services

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. goodness gracious 21st February 2014 at 2:24 pm

    So to avoid confusion, term assurance must not have any clauses that can benefit clients. So if someone has a long term illness which has not reached ‘terminal’ the poor client must fund the policy even though there are only state benefits coming in. Fantastic!
    Why not make terminal illness, guaranteed insurability and waiver, standard for comparison reasons and if health or occupation prevents these clauses being offerred, so be it. You are not able to compare anyway!
    Tick box rules OK

  2. I am delighted to agree with Alan.

    We work in one of the most complex, fast changing, wide ranging and technical fields in the UK and some bright apparatchik comes up with the idea of a simple product. Most of the things we deal with are relatively long term; even the shortest period is about 5 years. Guess what – this is the length of a Parliament. As we all know apart from things being changed every Tuesday and Thursday – each new Parliament tries to rubbish everything that went before and start anew.

    So what will the longevity of a simple product turn out to be? If taken in the morning – it might just last till after lunch. The providers love this naturally. They are the ones who are the most gung-ho for simple products. Up to December 2012 it meant they didn’t have to pay those nasty intermediaries commission. From January 2013 onwards it meant that they could give away a piece of tat with the product and because the nasty adviser was out of the loop the poor old punter would never spot the rubbish he ended up buying. And if he did, because it was ‘non-advised’ he is left high and dry with no recourse. Perfect for the providers.

    When life is simple there might just be a case for a simple product – until then as Alan has so sagely said simple = crap. No better example than AE.

  3. Term assurance is now cheaper than it has ever been, yet customers/clients/consumers are avoiding it in droves.

    My simple way of concetrating the mind is to say that I have yet to hear of a widow who doesn’t believe in life assurance.

    When I first set up on my own, I tried very hard to sell PHI. The take up was far smaller than my usual hit rate. I’ve never discovered a reason I could reliably say is correct. After all, the policyholder will see the damage having no PHI has done, where (so far as we know) one won’t see the damage no life assurance has done.

    In the end, with little empirical evidence to back it up, I concluded that people thought “it won’t happen to me.”

    The real reason that people aren’t buying products isn’t their complication, it’s that we now live in a society which has become too hedonistic, wanting everything today. Someone else is responsible for my tomorrow, I’m a really good person, so misfortunbe can’t possibly be my fault, so let me sue the world. Isn’t my stupidity down to the poor education I had and the unrealistic expectations I was given by Money Mail et al?

    Where’s that number for SueTheBs.co.uk (amublance chasers of this parish)?

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