As we wait with bated breath for the latest guidelines on how the RDR will affect the protection industry I was disappointed, but hardly surprised that the Swiss Re calculation of the protection gap- long viewed as a barometer of our progress or lack of it as an industry – still stands at £2.3 trillion – a number too big for most of us to comprehend.
Think of it as roughly £45,000 for every member of the adult population in the UK and its magnitude becomes clearer, even if the size of the gap is still incomprehensible in a society that routinely insures its pets and mobile phones.
So will the changes inherent in the RDR help us make a dent in it? Without a reliable crystal ball it’s hard to say, but I do expect that, as in the mortgage market, commonsense will prevail and we will not be dragged kicking and screaming into a fees-only world. Why? Because this model would simply not work for products with relatively small regular premiums. Its introduction would mean one thing only – the death of advice in the protection market. We were very pleased with the FSA’s approach to engage with the industry during this process and I’m sure that’s the last thing they would want.
Of course that isn’t to say that current commission models are perfect. Far from it. We need to help advisers build long term business value and indemnity commission does not achieve this. Instead it places advisers on a treadmill where new business has a higher value than existing relationships. And claw back just makes the treadmill go faster and faster and faster.
We must all work together to find a solution that helps advisers develop long term business models, protects consumers and leaves enough left over to make the protection market an attractive place for providers to invest in. Without investment, there can be no innovation. Without innovation we will still be talking about a £2.3 trillion gap in another 10 years time.
With all these points in mind we warmly welcome the appointment of Richard Verdin as chairman of the ABI Protection Strategy committee. We look forward to working with him on the many challenges ahead in 2010 and beyond.
Martin Werth is managing director of Fortis Life.