Would you expect a properly run generic advice service to increase take-up of life and critical-illness insurance?
Harper: We believe that a properly run generic advice service could provide a helpful base level of wider public awareness about the need for financial protection and the role that responsible protection planning plays in helping them achieve a sense of financial security now and in the future.
This, in turn, would hopefully lead a greater number of consumers to seek professional advice on their protection options and how they sit within their wider financial planning needs.
Edwards: We would hope that generic advice will help more people understand their protection needs. If people understand protection, they may value it more and perhaps see that it should be a higher priority than it currently is. So yes, we are hopeful that more people will purchase the protection they need as a result of generic advice, but quite what form that protection will take remains to be seen.
Morris: Generic advice will increase take-up of life and critical-illness policies but they are not necessarily always the right policies for individuals to buy. Although generic is a good intention, it leads on to primary advice, which is dangerous as it does not need to be suitable. It is primary selling, not advice.
It is up to an independent financial adviser to discover the customer’s real circumstances and needs and direct them to the most suitable product.
Life cover is the policy that people are least likely to claim on but, without advice, many consumers end up buying this product when it often should not be first choice on their list.
Friends Provident has become the latest firm to introduce tele-underwriting to help prevent non-disclosure. How effective is tele-underwriting in tackling non-disclosure?
Harper:We launched our combined online and telephone underwriting service in May 2006, which helps removes the burden and risk for financial advisers by accurately capturing clients’ details as well as ensuring clear and comprehensive up-front disclosure.
We have found that, as well as being a time-saving service for busy advisers, our tele-interview service provides peace of mind to advisers that their clients’ relevant details are captured accurately by dedicated, experienced professionals.
This significantly reduces the risk of client confusion or misunderstanding when making their application, which is the biggest cause of complication at point of claim.
There may still be a need for a GPR or other medical evidence where there is a complex medical history or where the sum assured is significant but, for the vast majority of business, tele-interviews are proving sufficient for LV=. That is better for the adviser and better for their clients and the feedback we have had to date shows this.
Edwards: We believe that tele-underwriting certainly has a role to play in helping individuals disclose information fully and accurately. It is still too early to say how effective it will be in tackling non-disclosure but early indications are positive.
A process that is dedicated to gathering information for insurance purposes that is carried out by trained professionals at a mutually convenient date and time is clearly a positive step.
Morris: Tele-underwriting is an important part of helping to reduce non-disclosure. Staff should be trained in empathy and establishing a rapport with the customer and be able to go off-script when necessary. If they think that the client is holding back on answering a certain question, maybe through embarrassment on a sexual health question, for example, a tele-underwriter should have enough savvy to return to the question later when a better rapport with the client has been established and remind them of their duty of disclosure.
What other measures would you like to see introduced to cut down on non-disclosure?
Harper: We believe the industry should expand the debate beyond how it treats cases of non-disclosure to how improved disclosure can be achieved through provider innovation. Further concrete initiatives in this area would be welcomed within the framework of helping advisers and providers fully meet their duties within the treating customers fairly requirements.
We have been operating the approach of paying proportionate claims for partial non-disclosure for a number of years.
However, we feel that the focus of the debate now needs to shift towards practical solutions that ensure accurate and full disclosure in the first place.
We believe that initiatives such as our tele-underwriting service already do this by providing greater certainty for financial advisers, their clients and providers themselves.
Edwards: We believe that a signatured process for online applications helps tremendously. This ensures that when an application is submitted online by an adviser, the customer is sent a copy to check for accuracy.
Obviously, we would prefer full and accurate information to be provided up front but this signatured approach gives individuals time to pick up any errors in their application or add in any information they realise they have forgotten to disclose to their adviser.
We believe this approach benefits both the individual and the adviser. As an industry, we could probably do more to help advisers and our clients understand what is important to us and why too.
Morris: Ideally, insurance companies and IFAs will record phone calls and tell the customer this is happening. This will act as a deterrent to those who plan deliberately to non-disclose and help to prove where the fault lies in the event that a claim is declined. It also has the benefit of proving when a customer is innocent.
Up-front underwriting is another option in the battle against non-disclosure. Lifesearch is hoping to run a trial with life offices on an option where the customer can choose to pay a small amount extra on their premium to be underwritten up front, effectively ruling out a declined nondisclosure claim.
Tesco’s latest marketing initiative involves extra clubcard points for customers who take out Tesco life insurance. Do you expect this initiative to be successful, considering that the 2,000 extra points equates to £20 off in the supermarket?
Harper: As a committed protection provider in the intermediary market, our preferred distribution model remains advice-led. Yet Tesco’s latest initiative is likely to appeal to consumers who are time-poor and may have less time to spend obtaining advice.
Recent research confirms that a clear need for consumer advice remains. Personal protection remains a consistent key driver for financial advice in the UK.
The choice channels that are offered by LV= are one way of ensuring we offer customers and members access to the most appropriate products from our protection suite, whether that is through an intermediary or direct.
Edwards: Bizarrely, some people probably value the points more than the cover. This promotion has been running on and off throughout this year, and Sainsbury’s has a similar loyalty point campaign too.
It may see an increase in sales of Tesco’s/Sainsbury’s life insurance if their loyalty card members are already thinking of taking out life cover but it is hard to see how this would encourage the desire to take out cover if that is not already there so it is unlikely to do anything but take market share rather than grow the market.
Morris: It may well attract a few extra customers as gimmicks usually work in the short term. The trouble is that the extra £20 will not seem quite as worthwhile if they lose out in other ways because they have not taken advice, which Tesco does not offer.
For example, without advice, very few couples realise that they are usually better of taking out two life policies instead of a joint one and writing the policy into trust. By doing this, they can increase the value of the policy by potentially hundreds of thousands of pounds with little or no extra cost. Needless to say, this is more valuable than £20 in a supermarket.
Do you think that such initiatives damage consumer perception of life insurance by concentrating simply on the price or special offer attached?
Harper: It is certainly an interesting tactic, especially in the run-up to Christmas. But consumers are still demanding objective expertise to help them plan for the future without undue distraction from today’s life pressures,and being driven simply by price.
People often need support and reassurance when it comes to understanding products that are perceived as high risk or complex. This is where the role of financial advice plays a key part, building consumer trust and helping consumers make product choices which will protect their families in the event of more difficult life circumstances.
Edwards: This puts the focus on price but Bright Grey prefers to focus on value while always aiming to be competitive.
People really need to check out what they are getting for their money. They do that when they buy other products. Take tea, for example. The cheapest tea only represents the best value for money if you can drink the brew. When given a choice, many people prefer to pay a bit more and get a better cuppa in return or a lot more and get a speciality tea. The same should be the case for life cover.
Some life cover products are considerably less flexible than others – you cannot alter the term or include waiver of premium or indexation or the exclusion on terminal illness is often for a much higher than average period. There are none of the valuable additional benefits that some protection providers include with their cover.
The price difference between the cheapest and the runners-up is frequently only a matter of pennies. If the focus is on price rather than value, people can miss out on a whole range of additional benefits. To focus on price could be a huge false economy.
Morris: The most important thing is that the customer ultimately gets the right protection product for them, regardless of gimmicks. It is the product that is most important and when protection companies start to compete solely on price or sales gimmicks, it suggests to the customer that they have run out of innovative ideas.
Products sold without advice means it is the customer’s responsibility to choose the right product, not Tesco’s (or any other non-advised seller). This means that if they make the wrong product choice they cannot complain to the ombudsman and are left with a poor product, inevitably damaging their view of the protection industry in the long run.