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Emma Simon: A quick fix won’t lift protection out of the doldrums

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When it comes to the taxi-driver test, protection insurance just doesn’t hit the mark.

After missing the last tube I’ve endured many conversations about house prices, the stock market and the rising cost of car insurance.

Similarly, when admitting I write about finance, I’ve been quizzed by friends about mortgage deals and credit card offers. I have, on occasion, been button-holed by older relatives wanting to tell me how scandalously their endowment or pension has performed.

But I’ve yet to be asked by anyone about whether I think they have sufficient life insurance, nor whether critical illness cover is a better bet than income protection.

The closest you get to this topic cropping up in ordinary conversation is the thorny issue of payment protection insurance – usually after some cold-caller has wrongly suggested a colleague could reclaim thousands of pounds.

It’s odd really, because this week, while discussing falling protection sales, I was told that PPI “wasn’t really protection insurance”. Apparently it sits in a different regulatory box.

Of course, you can’t argue with the fact that these policies have failed to provide any meaningful level of consumer protection. But I think this attitude illustrates the gulf between the industry’s view of what it sells, and their customers’ understanding of it.

Until this narrows, and the industry improves the way it communicates the benefits of protection insurance, then the downward trend we’ve seen in sales is likely to continue.

In fact, when you think about it, this fall in sales seems surprising and may mask more serious problems in the industry.

Given the economic difficulties and uncertainties in the job market, I’d have thought more people would be buying this type of cover. But it appears that premium increases caused by gender neutral pricing and life office tax changes have put a brake on sales.

This would indicate that a significant proportion of the one million life policies, 500,000 CIC policies and 100,000-plus IP policies sold each year aren’t to “new” customers, but are simply re-broked business that is being churned around the industry no doubt fuelled by the commissions paid.

It seems unlikely that new parents buying life insurance for the first time, or someone who has been made redundant and has lost valuable death-in-service benefit would be put off buying a life or critical illness policy because it is £30 more expensive last year. Surely they wouldn’t be aware of the price rise?

Is there any prospect of the market expanding? Well until prices fall, the rebroking market has been stopped in its tracks.

But there are two other ways sales could increase, although I’d argue only one would benefit consumers.

There are clear signs that the mortgage market is picking up, supported by low interest rates and the Government’s Help to Buy scheme.

If people are borrowing more, then they should have more protection to cover these debts. However, in the last housing boom, rising mortgage sales did not always go hand-in-hand with increased protection sales.  Mortgage brokers could make bigger margins more quickly by arranging home loans, rather than bothering with fiddly underwriting.

But the other side of the coin is the prospect that less scrupulous advisers will turn to protection sales as an easy way to turn the commission tap back on, which has been turned off by the RDR. The regulators have made it clear they are keeping an eye on this – and it’s likely at some point in the future these commission payments will be banned too.

Some might argue that it’s far harder to missell life insurance or critical illness plan. You don’t get too many widows or cancer survivors arguing about a £50,000 payout.

But the lesson of PPI  is that this is a market that can easily be skewed, by poorer quality products, higher commission payments and a bundling of these policies onto other products.

Let’s hope no one in the industry adopts such a quick-fix approach to boosting sales. It’s the wrong way to attract attention.

Emma Simon is a freelance journalist

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Comments

There are 21 comments at the moment, we would love to hear your opinion too.

  1. With respect, what’s wrong with a poorer quality product that people buy as opposed to a high quality product that people don’t?

  2. How is it likely commission will be banned? Do you know something the rest of us don’t?

    Unless you do I wouldn’t bother speculating as it serves no purpose.

    If commission goes then no one will get covered as there will be no incentive to sell protection. People need quality advice especially around CIC, IP, Trusts etc. Most of my younger client dont even know the basics of how a term policy works. So if they buy online without advice, they will probably buy the wrong product and it wont be set up under the appropriate trust.

    Banning commission on protection products so everything falls into place with rdr is madness. It doesn’t make sense in the real world.

    Products like Pru Protects Vitality engage people to buy protection as they get benefits without claiming. If the industry wants to attract new clients then this is the way to do it as far as im concerned.

  3. Emma, to suggest that re-broking protection is churning not only provides the naysayers with ammunition to hurt the industry but is also far wide of the mark.

    Until last December the cost of protection insurance – life cover in particular – fell with each passing year. This enabled sensible advisers to explore their files and find opportunities to save their clients money.

    To call this churning is quite incorrect. Churning is where a policy is replaced purely for the benefit of the adviser and with no advantage to the client.

  4. Like so much else this falls into ‘categories’.

    When you say that life insurance is not being bought, you imply that it is not being bought by the general public. I would contend that the more enlightened (by that read more intelligent and better educated) have requisite amounts of cover.

    For the great majority it is evident from comments on the topics from a great variety of sources that they have to be ‘sold to’ (read force fed). This is hardly ideal and does have the whiff of being more to the advisers’ advantage than the clients as retention rates seem to be pretty poor. (What proportion run to full term?)

    The reasons fort poor take up are not hard to fathom.

    1. People don’t believe they are going to die (period).

    2. Dying within the term seems inconceivable.

    3. In view of 1 & 2 above – then why spend the money. There are better things to spend on.

    4. Sadly but true many don’t see it as worthwhile as it doesn’t benefit THEM. (How much do I get when I die is a common question. The answer of course is nothing – you’re dead.)

    5. We all live in a wonderful Welfare State who will look after our dependents when we die.

    6. For some religion is the placebo. Praying wards off death.

    So if your livelihood is predicated solely on life assurance, be prepared for thin pickings. Those who really ‘get it’ are perfectly prepared to pay a fee – particularly when they see the savings over commission over the term of the plan.

    Furthermore it is even more perverse that take up is falling in view of the fact that there are now more advisers now concentrating on life assurance since a good few have been excluded from other avenues by the RDR. Any offers for an explanation?

  5. When you hear comments like ‘protection isn’t brought, its sold’ is it any wonder the public don’t have any faith.

    A generation of ‘insurance hacks’ have elbowed their way into people’s homes and ruined it for all.

    Sooner they retire the better !!! They’re still out there.

  6. If I want simple term cover. I will buy it on the internet. I can even write cover in trust nowadays.

    I don’t need some slimey salesman trying to convince me I need all the bolt on extras.

  7. Harry makes some good points.

    I have lost track of the fantastic reasons people come up with not to take out the cover that they have been advised by a professional adviser that they need. Some examples are:
    1: My church will look after my family so i don’t need it.
    2: I’m an only child so if i get ill my parents will happily support me and my child as i am going to inherit the money anyway.
    3: I’ve never been ill so why would i get ill in the future?
    4: I don’t care what happens to her when i die.
    or my all time favourite which a surprising amount of people use……..
    5: I just don’t believe in insurances.

    The amount of people i have seen paying to protect their Sky+ box rather than pay for life cover astounds me.

    A lot of people do not want to pay for something that they think they will never use or see the benefit of. Far too often the only people who look to take out cover are those that have experienced family or close friends becoming ill or dying first hand.

    The removal of commission would only add an extra hurdle that would stop clients taking out the protection that they need.

  8. Alan, I think you make a fair point about churning. If there is some benefit for the consumer, ie lower cost, then perhaps this isn’t the best term. However, I do wonder whether lower costs can sometimes mean less cover (I know I have an older CI policy, which if I changed would now exclude various types of cancer). It would also be interesting to see how much the consumer saves versus how much the adviser makes. I know I have a bugbear about commission, but it’s hard to argue that it hasn’t distorted other markets.

    Also while I would argue that some cover (with a commission) is better than no cover (without) – this surely isn’t an argument for selling “poorer quality” products. This is what happened with PPI. If people think they have some kind of protection in place, then when they try and claim, discover there are exclusions that were never explained (and which may mean they could NEVER have claimed on the policy) surely this only damages the industry as a whole and puts even more people off buying insurance.

    Agree that many people don’t buy who probably need this cover – but are their other ways, aside from commission, to encourage greater take-up?

  9. Completely correct Alan

    I do get a little tied of the theorists explaining why protection gaps are widening (in the same way as all the other well known Financial Services gaps) and putting it down to commission – its just isnt true – FSA couldnt prove it either.

    Wonderf if WONGA are worried they are too expensive ?

  10. Emma
    those who can do, those who can’t write about it.
    Perhaps instead of paying commission, all those in need of advice should just write to you.
    Just find a recent widow/widower with three young kids or a critically ill person, with dependents if they wish they had bought some cover or listened to the argument that commission made it seem pointless.

  11. Oh Emma don’t mention the Pru.
    Didn’t you know that all protection now comes from S Africa? The admin is horrendous. None in the UK knows much about it. Try and get some definitive information in writing – rather hopeless. It is one thing to believe the advertising hype and quite another to arrange this offering with sufficient due diligence.

    Big deal if you finally manage to negotiate the arcane terms and conditions you get a cheaper Gym membership. Seeing as how most stop going after about 3 months – it is about as bigger scam at PPI. And the premiums? Not very competitive either.

  12. This girl is beginning to get as annoying as cicutti.
    Spouting nonsense re commission and getting paid for it.

  13. Felix I think you are talking utter rubbish.

    The Pru are the only insurer to think outside the box when it comes to protection. They are leading the way with innovation.

    The whole idea with Vitality is its meant to decrease the chances of getting a serious illness, long term sickness or premature death if the client engages in a healthier lifestyle. Vitality makes it cheaper to get healthier and incentivises its members to do so. This is a great idea when people are getting fatter, more sedentary and more prone to mental health issues than ever before, anything that encourages a healthier lifestyle coupled with a good level of protection has got to be a good thing.

    With regards to the cost, it is a little bit more expensive than a Vanilla product from L&G or Aviva but the benefits attached can far outweigh this for the right people.

    Sure the admin can have its problems but so does every other insurer i.e LV, AVIVA et al

    For you to say its a con and in the same breath as PPI is crazy talk. You obviously not right in the head, maybe you should engage in Vitality yourself!

  14. @ Jonathan C

    Either you are an employee of the Pru or you fit into the category of ‘One born every minute’.

    When you start on the path of trying to obtain a comprehensible and clear cut quote you are buried under a welter of options. None of which is properly outlined or fully transparent. Obviously for acolytes the high commission makes the plans attractive (higher than most conventional options from other providers), but I would contend that (as you say) life company service and admin is bad enough without having to deal with people half a world away. (Something on which you declined to comment).

    Admin in general may be poor, but the Pru are the Gold Medal Winners when it comes to truly awful service. (With L&G not that far behind). Aviva to their great credit have made enormous strides over the past year or so.

    Oh and for your information, I don’t need the Pru’s fatuous offers. I have a fully fitted Gym in an annexe to my home and a personal trainer twice a week to boot.

  15. Emma talks a lot of sense and has clarified her reference to churning. She isn’t saying that all commission incentivised sales are bad. Just that a market which is held together by commission isn’t much of a market.

    Change is coming, perhaps quicker than most people think. New underwriting solutions are starting to arrive, which could potentially be developed into market changing propositions.

    Distribution is as ever the key. Distributors are already able to customise propositions according to their/their customers needs and the door is wide open to an ambitious operator who wants to break free of the current stagnant market.

    Re. the comment above about Wonga – perhaps Emma could write another article on comparisons relative to the life insurance market ?

  16. The relevence to Wonga I would have thought is obvious.

    If loans were price driven Wonga would not lend a single penny coin – similarly commission and its relevence and the purchase/advice/sales of protection.

    By the way, I am one of those successful ‘distributors’ (what a strange reference)

    I will try to be a little more clear for the theorists in future.

  17. RegulatorSaurusRex 10th September 2013 at 11:31 am

    One well know life office that offered a 24 month earnings period on life and cic had its broker consultants going round actively encouraging churning.

    Another one decided to scrap the indemnity period for one network and lost a mint when the business was moved elsewhere after a month.

    One network was actively switching CIC with “cheaper” term which included terminal illness cover because “it’s the same thing”.

    Emma is 50% correct this time, the market is being abused by people who have only one thing on their mind, commission. The rest have only one thing on their minds, fees.

  18. Felix your wrong…. Again

    I do not work for the Pru, im a directly authorised protection broker who believes firmly in the Pru’s product. As I said before they are the only insurer thats doing anything to engage new clients on a different level.

    Like it or not the vast majority of people, especially the younger generation (which im part of by the way) are interested in getting benefits such as free cinema tickets, discounted concert tickets, discounted gym memberships etc. These benefits are great for many people, least of all existing members of Virgin Active who can switch out of there existing contract to a new one and save approx £30 p/m on average

    As I said, for the right people the Pru’s offering is a breath or fresh air. You obviously have a bee in your bonnet about Pru for some reason or another. Their cover isn’t difficult to understand if you take the time to look at it properly.

    Lastly your assumption that I use Pru Protect is due to the commission I receive. I can tell you this is the last thing I look at as I could get far better terms elsewhere such as 2 year clawback options with several other providers or significantly more commission from Friends Life.

    Oh and woopy for you if you have a gym in the annex of your home and a personal trainer, how pretentious

  19. @Jonathan C: Sounds like the Gold Current Account scam to me. Spend £10 a month in return for travel insurance you can’t claim on, home insurance you are already covered for and discounts no-one uses. Whether people are interested in them or not is not relevant. This is a publication for financial advisers and the question is whether they are a good deal.

    Felix is quite right, most people get no benefit from discounted gym membership because they stop turning up after a few weeks. As for a £30pm discount, they could probably get a £60pm discount if they packed in the gym and went for a run, and enjoy themselves a lot more. Oh no they couldn’t, they’ve got a 12 month contract which is impossible to cancel.

  20. Well Sascha you have just shown yourself up by how badly informed you are about the product. Unless you know what your talking about I would watch what you post as it just makes you look stupid.

    The benefits around Vitality are nothing like “gold current accounts” the benefits are tangible benefits people use, my clients love the benefits and are constantly referring their friends to me, so it can be that bad. Also Vitality Plus is only £6.80 per month which is great value.

    Just because you think the gym is a waste of time doesn’t mean to say other people do. There are plenty of singles, couples and young families who use Virgin Active gyms on a regular basis and love the facilities they have. I bet you have never been to a Virgin Active gym in your life?

    Also one other thing your wrong about is being tied into an annual gym contract, any existing member of Virgin Active can break out of their 12 month contract and get a half price month by month contract when they take out a policy with Vitality Plus.

    As I said in previous posts, Vitality Plus can prove to be great value for many people, especially couples with young children so this is another thing your incorrect about.

    The article was actually about ways to get protection out of the doldrums. As I said Pru Protect are the only ones thinking outside the box when it comes to this. Are you and Felix scared of this incase you see your own cases been re written in favor of this product??

  21. Good point from emma around CI policies being re-broked. The policy definitions are getting much harder to meet and you could say clients being advised to re-broke for a cheaper premium are getting mis sold as their old policy would pay out for angioplasty but their new one wont… !

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