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Cover cynicism

Nic Cicutti

More than 10 years ago, while still working full-time for a newspaper, I was approached by a company with a revolutionary idea. It wanted to sell life insurance over the phone and could do so more cheaply than anyone else and would I write about it?

That day marked my first meeting with Tom Baigrie. Already a successful IFA in London, he created a new firm, LifeSearch, specialising in protection which, uniquely at the time, would be sold exclusively over the phone.

The products came with advice and were taken from a full panel of providers on The Exchange trading system, a prototype electronic “community” originally set up by the insurance industry in one of its rare collaborative bouts at the start of the early 1990s. Not only that but LifeSearch also guaranteed to be cheaper than any other firm operating in the same market.

Most personal finance journalists at the time declared LifeSearch a winner, even though nowadays Tom has rowed back from trying to be the cheapest and prefers to talk about the quality of advice given to consumers by its sales advisers. It is fair to say that over the years LifeSearch has probably done more to popularise the concept of protection for UK householders than any other single organisation in the UK, including the ABI. Yet the industry itself has been shockingly bad at promoting protection to consumers in a consistent, targeted and appropriate manner.

By that I do not mean the opportunistic and haphazard sales of critical-illness or whole-of-life products usually linked to mortgages. The far more serious grind of helping clients to understand why it makes sense to take out cover against a range of life events that can threaten their long-term income – and devising a product that adequately covers against those events – is something the industry has signally failed to achieve.

According to Swiss Re’s 2009 annual report in June, individual income protection sales reached almost 127,000 last year. This theoretically ought to be good news – it is up by 13.5 per cent over 2007.

But as Edmund Tirbutt observed in the magazine Health Insurance & Protection, the figures included more than 29,000 policies from HSBC, whose cover is more akin to payment protection insurance than income protection. Without HSBC’s contribution, total new IP sales during 2008 fell by 11.2 per cent.

The danger of this approach is that it has left the market open for some of the worst perversions of the income protection business, namely the kinds of PPI cover happily missold by many lenders and big retailers over the past decade. In turn, this has bred massive consumer cynicism towards all other types of insurance, even where the products themselves are perfectly acceptable.

Which is where Tom Baigrie comes in. Last year, he wrote a key article in Money Marketing, in which he called for the industry to launch a generic campaign promoting protection products to the general public.

Sadly, although Tom managed to wheedle £100,000 out of the industry for research into how such a campaign might be set up, it proved impossible to squeeze the much bigger sum of £5m for an initial ad campaign, never mind the additional £3m annually to build on growing public perception of this issue. He has, probably wisely, called it a day – at least for now.

I always thought this was a campaign unlikely to get off the ground. In January 2006, I wrote about the problems faced by consumers in understanding the kinds of premiums they might have to pay, how long they might have to wait to be paid, even the definition of disability that determines whether they might be paid anything at all.

Three years on, almost nothing has changed. Alan Lakey, of Highclere Financial Services, wrote a fortnight ago about continuing problems over unfair claim definitions such as any occupation which “cannot reasonably be met unless the claimant is immobile or hospitalised”.

Lakey also identified problems with tests centered on the inability to perform a set of activities. In some cases, these could exclude claimants with two broken arms, even blindness.

The reality is that an industry unable to agree the most basic wording and definitions of its income protection, preferring instead to churn as much profits as it can out of inferior – but much easier to sell – critical-illness products was never going to stump up £5m for Tom’s campaign.

Still, it says much of him that at least he tried – and as much about the industry that it refused to back him.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Good piece Nic, the problem with this industry is that in many eyes there is no tommorrow, there is a great big 2012 looming, the ‘buffers’ if you like.

    In addition to that I believe that any such initiatives should be carried out by someone who has no vested interest using a pocket full of fluff, throwing £millions at it without a cost benefit analysis might be unwise in these times when consumers need to reduce their debt before funding the life industry. Would the money be better spent on educating consumers in the workplace than lining the pockets of what would probably be another ‘committee’ handing over wads of cash to the media when the younger generation don’t bother buying newspapers or even watch the telly!

    Anybody fancy a financial services ‘think tank’, with ALL players both large and small having a say? Do all these ‘representative bodies’ simply confuse everyone concerned?

  2. There is a mindset – understandable, I guess – which says that spending is a more agreeable activity than buying insurance.

    As a society we need to make consumers understand that they have a moral duty towards their families and dependents to provide some form of protection when ill or dead.

    How this is to come about is the matter under discussion and throwing money at it, as in money guidance, will only make slight headway.

    Ironically, when hundreds of thousands of non-quality diret sales guys marauded the land, twenty plus years back, the average Briton was better insured and pensioned than he is today. There is a connection.

  3. Agree on the last point.That’s the gorilla in the living room-or not as is the case now. Perfect no screams of commission hungry salesman, no commission in the products AND MOST OF ALL VERY LITTLE IN THE WAY OF THE PUBLIC HAVING SAVINGS AND PROTECTION. ALL HAVE BEEN IN DENIAL- INSURANCE IS SOLD NOT BOUGHT. A great social experiment and the regulators have failed the public.

  4. As of today I have a question, is it time for me to give up on the advice sector?

    I was using rose tinted glasses until some people I thought I knew well stood on them and released me from the chains of defending the indefensible.

    Such is life…

  5. As of today I have a question, is it time for me to give up on the advice sector?

    I was using rose tinted glasses until some people I thought I knew well stood on them and released me from the chains of defending the indefensible.

    Such is life…

  6. There is no incentive for one to make provision unless there is significant wealth at stake. We have a nanny state where every person has rights but ultimately no responsibilities. Those who do nothing to protect themselves or their family are subsidised by those who act responsibly and plan for the future. The industry needs to smarten up, play things straight over the long term and eventually rebuild trust in financial services so that insurance is not a grudge purchase..

  7. I can’t remember who it was on here who said (in defence of ‘selling’) that protection products need to be sold to Joe Public. JP needs telling why he needs this Life/CIC/IP policy and why……they are not things JP jumps out of bed one sunny morning and thinks he/she will go and buy…..

    Bob on.

    DS 🙂

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