A lunch with senior IFAs who had not heard of the Swiss Re protection report exposed the root of the problem facing the protection market in reaching consumers through IFAs. As one senior IFA noted: “There is no way we can know all the features of each product but when we get a client who needs cover, we look on The Exchange and ask around the office and get them a good deal.” Imagine if he took the same view of his investment fund selections.
Of course, there are many protection expert IFAs but it is inevitable that as IFAs are driven out of business or on to the richer and older clients by the retail distribution review and the FSA’s already rather dated definition of what is good for consumers, so protection’s traditional distribution base fades. And while IFAs who cannot keep themselves up to date in protection will no doubt start to refer protection on to specialists so as to maintain quality of recommendation, that does not help the main consumer market.
This supply-side gap has been growing for years and has driven providers to several different strategies in order to market their products. The first, selling online through price comparison sites, was adopted with relish by all the biggest players despite this column’s efforts at pointing out the consumer detriment caused. But although their niche is established, price comparison sites cannot penetrate a consumer market, they live by undercutting the better quality routes to it.
Now that that route has proved a dead end for most, the focus has shifted to the ex-mortgage broker telesales market, which has taken advantage of an FSA blind spot to apply non-regulated, hard-selling skills to improve conversion rates by giving advice while claiming not to.
But with lapse rates and complaints at levels the providers never imagined in their worst nightmares, this sales approach looks set to fade fast.
But this sensible market correction does not solve the key problem, ignored as ever by the Swiss Re report, that ever fewer people are buying protection with advice, which means a decline in average monthly premium secured and an increase in lapses.
For that to be solved, a new approach to distribution needs to emerge. The Association of British Insurers seems to be coming around to the suggestion first mooted in this space many years ago that marketing to consumers is sorely needed but I fear that any such marketing effort will find itself almost unable to be properly fulfilled because of the lack of quality distributors that know much about protection. There really is little provider profit in a business case that gets consumers buying protection if their buying route is honest non-advice.
With the provider market currently undergoing rapid contraction, we seem set for a very few large businesses vying for market share through distribution channels ever less able to actually get consumers to do things properly. I cannot think of a set of circumstances more likely to drive the growth of tied agencies or even, goodness me, the return of direct salesforces. I wonder which provider will show the resolution needed to lead?
Tom Baigrie is managing director of LifeSearch