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Closing the gap

As the old adage goes, ‘the more things change, the more they stay the same’.

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.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. One thing missing from the adviser world for many years has been stability.

    Runnng a business is difficult enough without the constant adjustments, side-steps and faltering strides that regulation has caused.

    The secret to reducing the protection gap will not be found in banning commission, designing yet more consumer blurbs or in developing different advisory strata.

    Advisers sell protection and this is predominantly by approaching sensible consumers who for one reason or other have failed to adequately protect themselves andtheir families.

    We should be looking at how advisers can be assisted in this task. Introducing a regime that excludes up to 50% of the current IFA world is not a step forward.

  2. I couldn’t agree more, the indemnity commission route is now long out-dated but sadly the insurers don’t make it easy for the IFA. They don’t actively promote Non-indemnity commisson and when you do want to do protection on a non-indemnity basis that can make it difficult by insisting you have to set up another agency etc to allow payment via this method. I have been on this treadmill for years and made a decision just over a year ago to switch to non-indemnity. I now enjoy a regular income of £630pm and growing before I do anything this together with my GI earnings has helped see me through these tough times. In less than 3 years I will never ever see a reclaim again, this also helps ensure exsiting clients are valued just as much as a new client as you have a vested interest of a regular sum coming through. So its about time the ABI got its members more active in promoting non-indemnity and I suppose the next forward move will be to look at level commission as this will help all and stop policies being churned just to earn a sum of money, which I know many do on a regular basis.

  3. I agree with the comments above. IFAs are a vital distribution channel in the protection industry.

    As Alan Lakey points out, advisers have to “sell” protection, rather than benefit from a huge consumer pull. To enable this, the rewards to IFAs for advising on and selling IP have got to be right, and charging the customer a fee is unlikely to help IP sales.

    Some providers, including some friendly societies, recognise this and do provide a non-indemnity option, with no additional agreements needed.

  4. I agree with the sentiment that protection sales would be on a more stable platform if non-indemnity commissions were the norm. However I think it is naive to expect the IFA community to be able to switch to this basis without any assitance from insurers, as it has major cash flow implications at a difficult time for New Business.

    In my opinion if insurers are serious about this development, they should be either offering good factoring deals or negotiating attractive deals on IFA’s behalf with other financial institutions.

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