The fine handed out to Hadenglen Home Finance is just the latest in a long line of payment protection insurance missales tackled by the FSA. Should the rules surrounding PPI and MPPI be amended to prevent any more instances of misselling?
Carr: A product itself cannot missell. It is only the sales process and communication around a product that can, and it is these areas that need to be improved wherever there is ongoing consumer detriment.
If you tell a customer about a product’s limitations, as well as its benefits, then the customer is informed and has been treated fairly.
But in the case of PPI, the truth is that if half the limitations were mentioned during the sales process, very few, if any, policies would be sold, which would hit high-street profits hard.
As long as mortgage lenders are allowed to push what is profitable above what is suitable for their customers, without sufficient information to make an informed choice, this problem will only continue.
Verdin: I do not think that amending the rules beyond those proposed in new Icob are necessary. The FSA has already identified the issues and has set about addressing them.
The key to reducing the incidence of misselling lies in businesses adhering to the FSA’s existing rules and principles, together with the kind of focused policing of distributors we have seen from the FSA recently.
Crawley: Oh yes, tighten and then tighten again please.
These products generated huge commissions to firms and have been flogged to some of the most vulnerable people, whose lack of financial knowledge makes them an easy target.
Many victims had years’ worth of premiums for the product added to their mortgages as a lump sum in advance. This was misselling at its worst and a disgrace to our industry.
What do you make of Zurich’s new combined mortgage and critical-illness product? In what circumstances would this be appropriate?
Carr: It is an interesting launch that may well appeal to the mortgage protection market, as well as traditional IFAs. In particular, the concept of accelerated CIC and IP to keep costs down should be well received.
However, as with any new launch, it is very early days and the proof is in the pudding in terms of service, underwriting and rates.
Verdin: The Zurich plan will undoubtedly have a part to play in the advice offered by a large number of distributors.
Until recently, Zurich restricted its competitive activity to the relatively niche areas of large case underwriting, IHT mitigation and business protection.
However, it now clearly has an appetite to compete in the mass housing and personal markets, for which its new products have a good fit.
The combinations of cover offered under the full plan are good and some of the features introduced are unique which, when added to its accelerated benefit discounting, will make the package attractive to some advisers and their customers.
As long as the pricing and service levels are well constructed, then Zurich will fare well in what is a highly competitive market.
Crawley: You have to feel sorry for the marketing departments of life companies constantly given the task of reinventing the wheel, well the boys at Zurich seem to be to have managed a very good effort.
I like the unique selling proposition of free cover between exchange and completion and with service levels better than most, would seriously consider using this if the price is right.
Following the decision not to merge with Royal London, what do you expect Royal Liver to do now?
Carr: We were relatively open about the merger as we believe that both companies have strengths that could complement each other.
Royal Liver has a successful strategy in protection that is delivering results. Before, during and throughout the period of the corporate talks it was very much as case of business as usual and the group has recently posted its best half-year results for some time.
As far as I know, it does not need to merge or make any further acquisitions to continue being successful.
Verdin: This depends on whether Royal London saw the proposed merger as an isolated opportunity or whether it was just a part of a wider plan to grow via acquisition and/or mergers.
All we can do now is wait and see.
Crawley: The big question is does Royal Liver have the critical mass to be a player in today’s changing marketplace? Many commentators answer no but the fact is that it has various distribution channels and has just posted some good results.
So, as someone who believes that diversity and choice is good for the market, I hope its 150-year heritage will remain.
Is the vegetarian life insurance offered by the Animal Friends just a gimmick or do you expect to see other companies follow suit?
Carr: Although vegetarian lifestyles may arguably be healthier, as far as we know there is no proof that vegetarians live longer than meat-eaters.
Some say this launch is more about clever marketing than meeting a genuine consumer need.
There are potential issues around underwriting, in that how does someone prove they are vegetarian? What is to stop non-vegetarians applying for the discount and what about those vegetarians who give in to the odd bacon sandwich here and there?
Some say it is the same with smokers but it is not – there are simple tests that prove the presence of cotinine in the body’s system. It is also recorded on your medical file and let us not forget that smoke smells.
With-profits going to charity it is certainly a worthwhile cause but I am not sure if any rivals will be rushing a product to market.
Verdin: Discounted, or special terms for groups of customers based on an affinity (with each other or with the distributor) are not just gimmicks because customers genuinely benefit.
In financial services, we have a long and rich history of distributors sacrificing commission to improve customer pricing or negotiating special terms for such groups.
Some improved terms are based on actuarial or underwriting principles while others are simply based on a marketing idea and who is to say that one is a gimmick and the other somehow is not? Animal Friends is not doing anything unique and it is not doing anything wrong.
Crawley: Niche marketing is not a gimmick when your niche has a potential audience of around four million people.
Many of the vegetarians will, having made an intellectual or political choice on their lifestyle, be capable of proactively supporting this initiative, which offers a win/win proposition, cheaper premiums and profits from the company being ploughed back into various animal charities. I suspect that this will be a success.
If other companies do start to offer a discount for healthier lifestyles, what would that do for general life insurance rates?
Carr: With more rate cuts, more premium loadings and longer application forms than ever before, the industry is, arguably, already in a preferred life market, where only the healthiest lives get the best prices. It is estimated that four or five in every 10 applicants are not currently being offered standard terms. Some call this cherrypicking, some call it market conditions.
I think we will see developments around lifestyle underwriting in future and also other areas, such as postcode and dress/waist size as well as the basic height and weight measurements.
Verdin: As soon as you separate out the healthier lives from the population, by default, those remaining are less healthy and will have to pay more for their cover.
We have, over recent years, seen a reducing majority of customers receiving what we call ordinary rates. The only question is how far are insurers and reinsurers prepared to push the pricing and segmenting of lives?
Crawley: If this became a trend, we have to assume that general life rates would have to increase as the healthiest lives would be removed from the general pool.
Should providers be offering real-time pricing for protection products? What impact would its introduction have on advisers?
Carr: With rate changes happening weekly, and sometimes more often, we are not that far off daily or real-time pricing. While prices are falling, this is not a major issue, as few people object when something becomes less expensive but this would be a different matter if/when prices begin to rise.
As with many things in financial services, this is the future and so the best advisers will embrace it. The important issue is to make sure the customer is informed and does not get hit with any surprises.
Verdin: Providers use regular repricing to manage their margins and to control the flow of new business. Limiting insurer’s capacity to reprice as often as they need to is in nobody’s interest.
As long as insurers have robust systems in place to ensure customers receive the pricing structure they were sold, I do not see the problem, although I would prefer to see all insurers spending their resources on speeding up their underwriting process rather than speeding up their ability to reprice.
Crawley: As an adviser, I fail to see how real-time pricing would help me or my clients.
What most people want is certainty and the protection market is driven by needs and not directly by price.
Kevin Carr head of protection strategy, Lifesearch
Richard Verdin sales and marketing director, Direct Life and PensionsPaul Crawley, principal, Foremost Financial Management