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Class acts

During the last week, I have learned of two initiatives from the usually mundane world of income protection insurance.

Unum Provident has set up a joint venture with Wesleyan to provide bespoke income protection for teachers. Teachers used to be considered low risk but due to the stress they are now viewed as a class 3 risk, which generally prohibits the use of an own occupation claim definition. Unum’s plan has an own occupation definition, which is the only definition worth having.

The second innovation is from the forward-thinking friendly society sector, with the Holloway unveiling its personal income protection.

Premiums are guaranteed for life (ignoring indexation) and the own occupation definition is available to all employment categories apart from class 4, who are assessed using a suited occupation definition from the second year of a claim. In typical friendly society fashion, gender and smoker status are ignored in setting premium levels and there are no standard exclusions. The plan can run to age 70 and has a variety of deferred periods, starting at four weeks.

These initiatives may bring personal protection to the forefront of financial planning. It has languished as the impoverished brother of investment plans, platforms and Sipps. It is essential and any adviser who focuses on investments to the detriment of proper protection planning is failing in his duty of care.

The FSA recently made a public statement on ending single-premium PPI plans. I applaud this approach but must ask, why now? Why has it taken the long awaited report from the Competition Commission to galvanise regulatory action? In November 2005, the regulator wrote a “Dear CEO” letter to all PPI underwriters and distributors, alerting them of their concerns regarding product inappropriateness but no action was taken.

I am not talking about compliance with the rules but with the actual worth of the product. Surely, the fundamental unsuitability of these plans has not just filtered through to Canary Wharf? Every adviser and his dog has known for more than a decade that such plans are grotesquely designed vehicles aimed at prising massive sums from unknowing or weak-willed victims. There never has been a rational purpose for single-premium PPI, unless you are the salesman or the product provider.

It should not be beyond the regulator’s ability to act with a modicum of speed. I can hear that stable door again.

Alan Lakey is a partner at Highclere Financial Services

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