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Beware the rise of the protection floggers

I’ll tell you what really gets my goat.  IFAs who have moved into the protection space without first properly understanding what they are doing.

It is a concern that is shared by others, including the regulator. While most of us have no issue with proven advisers making more protection based recommendations, which should in fact be widely welcomed, some of the sellers moving into the protection space are doing so because they have been less successful, shall we politely say, in other areas of financial planning.

They buy in third party generated life cover leads to keep afloat, but as there are so many ‘advisers’ doing this right now, they have pushed up the price of these leads to unprecedented levels, which for the wrong business model could potentially be a very short-term and counter-productive cycle.

It also may not result in the best of outcomes for consumers. If the seller does not know their market (or their client) properly the conversion rates on those expensive ‘leads’ might not be great. So you buy more leads, which raises the price further.

What might they do to tackle this? Some have started buying cheaper accident, sickness and unemployment/payment protection insurance leads instead with the sole intention of trying to flog them some life cover. They have probably not sold a proper income protection/protected health information plan for 10 years – if ever – and have little if any idea about the products currently available or indeed any wider marketplace issues.  So they stick to selling ‘cheap’ life cover to the cheapest leads money can buy.  While others have gone from selling the simplest product in the protection armoury (life cover) to one of the most complex, which needs genuine independent advice: income protection.

Protection providers have already warned that new regulation such as Solvency II, RDR, tax changes and gender-neutral pricing will significantly impact the cost of protection policies later this year, which could impact on the protection market in many ways.

While persistency of existing business should improve, those models who rely on buying leads and switching policies could also struggle. On the positive, however, if prices are set to rise, that’s usually a good time to start buying.

Mark Dennison is director of LightBlue UK, a protection adviser

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. Is this man really Brian Moore? I think we should be told!
    Fair comments btw!

  2. It`s sour grapes that make him look like that.

  3. Do you remember the LIA, The Life Insurance Association? Well in days gone by they fought tooth and nail to retain the title The “Life Insurance” Association, so highly were its roots valued in the protection business. Then the rot set in, along came SOFA and ultimately the PFS! Something in the culture of protection died along with the memory of the greats like Ben Feldman, Frank Bettger and the early founders of the LIA, Ken Clark and many more too numerous to mention. Perhaps we are about to see a renaissance in protection and a return to basics?

    “If I had my way I would write the word Insure upon the door of every cottage and upon the blotting book of every public man, because I am convinced for sacrifices which are inconceivably small, families and estates can be protected against catastrophes which would otherwise smash them up for ever.”

    Winston S Churchill

  4. Great article and valid points made. IP is complex protection product and unfortunately some advisers and certainly the public, dont realise until it’s too late i.e. a claim doesn’t pay.

  5. Well said Mark, it’s up to providers to make sure their agents sell their products properly in my view. I belive the regualtor is watching the sector closely in the run up to RDR, and it’ll take a bit of self regulation to keep them from making hundreds of new rules I reckon.
    I echo your views at http://www.lifesearch.co.uk/LifeSearchBlog/The%20Life%20Insurance%20Market/2011/11/Archives2011-11.aspx under the title “When good men do nothing”. Hope the link works! Tom. PS You’re all over Twitter, but I can’t find your @address…

  6. @Simon Mansell –

    Simon, I too was inspired by Frank Bettger and the like, but I’d be a bit hesitant about invoking the glory days of the 50’s, 60’s and 70’s, when a great deal of the protection sold in UK was Whole of Life, Non Profit, and not because it was inherently superior, but rather because the commission structure, laid down by the LOA and ASLO, under the maximum comissions agreement, was based on the sum assured, not the premium, so that a low premium, (but much greater than level term), could generate a massive commission.

    Glory days indeed, but not always for the client I’m afraid.

  7. @ Gerry. Who cares about the client? Selling life policies makes lots of commission

  8. This has a feeling of a financial ‘Life on Mars’ about it.

    Are we really in 2012, with RDR just around the corner? How can people purporting to be IFA’s or Financial Planners, still be simply flogging the highest commission paying policy to the great unwashed?

    Is it the case that because commission on protection will still be allowed post RDR, providers and some ‘advisers’ simply see this as the next [only] churn and burn place to make a fast buck?

    Indemnity commission in my opinion is such a poor business model all round that I don’t really get why anyone, providers or advisers alike, want to use it and it must be viewed as a high risk area from a regulatory perspective.

    So why, apart from provider pressure, has the FSA allowed it’s continued use in this area as it runs counter to everything that RDR is about?

  9. Roughly translated as Mr. Dennison is bitter because others have pushed up the costs of buying client names for his protection business and now HE is somewhat struggling.

    He says advisers who do not know what they are doing? Exactly how thick do you need to be to not understand a term assurance contract?

    Utter nonsense, I am afraid Mr. Dennison has made himself out to look a right old Charlie!!

  10. Protection remains undersiold by advisers because its not sexy.

    Wealth managers have claimed the high ground by advancing the elitism angle and the twitching, switching, stitching, tactical tilting or whatever fad it is that they promote this week.

    Protection supports everything else and, perhaps, this is the one positive aspect of the otherwise deplorable RDR, that more advisers will look closely at protection.

  11. LOL!!

    Light Blue

    Dark Grey

    Bright Red.

    Was this man born a protection flogger?

    He has a point I suppose but he is a little out of date, who mentioned Life on Mars and sour grapes? What sort of wine do sour grapes make?

  12. Commission is staying for a number of very good, and very sound consumer driven reasons. Alas, however, some people will always seek to exploit the rules for their own gain, regardless of what rules are in place. Banning commission in protection won’t help consumers – but improving access to quality advice will.

  13. One of the relebtless arguments the whole industry explores on a daily basis is should products and/or commission be banned?

    Those who promote such sanctions seem to have lost sight of the fact that it is a moral issue.

    Banning commission or bad products may solve one relatively small problem but it creates myriad larger problems.

    Were the regulator actually capable of regulating – as opposed to rulemaking – then these issues would not arise.

    In short, ban rule breakers and leave the rest alone.

  14. @Tom Baigrie
    When a pop up appears on my computer without me having to push a button that invites me to get a life quote, I am not pleased. When the company does not identify itself on the pop up’s main page I am less pleased. When under the terms and conditions I find the pop up is provided by Leadz of Northern Ireland who are not on the FSA register, I am curious. When I then ask for a quote, giving a correct e mail, but an incorrect phone number, I am even less pleased when at 8.20 this morning I received a phone call on my phone that is registered with the telephone preference service from someone from lifesearch, who I have not given permission to call, as I have not made any agreement with this firm.
    When will some companies treat customers fairly, take proper regard to the marketing rules we should obey, and Identify themselves properly. A reminder that a purchaced lead does not give authority for an marketing phone call outside the permitted hours rules. Shame on you

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