It is no secret that income protection can be a complicated sale. One particular question that keeps cropping up more often is whether the increasing number of product innovations within the income protection sector is actually making life simpler or more difficult for advisers and ultimately the consumer.
With price still widely considered to be the main driving factor, how far can product innovation go and what tools are needed to make life easier for advisers?
Current processes mean that advisers have a great deal of information to verify before they are able to offer their clients a comprehensive range of options, including the value of employee benefits the client is entitled to.
In addition, the underwriting process can be lengthy and premiums are often revised upwards as the client provides further information.
To top this off, there is a healthy dose of the RDR to factor into the equation. What impact will the selling of income protection products under Cob rules have on the existing investment-linked Holloway-style products?
Range of options
Income protection products have always been viewed as the more comprehensive and more customer-centric than payment protection insurance. But this means there are already a few areas of complexity which require careful attention from the adviser.
One example is that many income protection products have differing definitions of incapacity and many advisers who are not familiar with these variations may not be clear on what definitions are available.
For example, is it validity of a claim based on own occupation, suited occupation, functional abilities/assessment tests, activities of daily living or activities of daily working? What cover do each of these options provide and what are the associated costs?
Deferred periods are another area needing careful consideration.
Despite valiant efforts, there is still a long way to go toraise awareness among consumers of the importance of income protection
We are now starting to see new products coming on to the market from the friendly societies that offer one and two-week options and these options also play a part in suitability of the product to the consumer.
With all these complexities and the potential for client displeasure, it is not surprising that advisers have been hesitant from entering the income protection arena.
The last few years have seen some very clever product innovations within the income protection market and the trend is likely to increase as the industry attempts to reduce the protection gap and help bring income protection to the fore of consumers’ minds.
Many of these product innovations are designed to make cover more affordable and more accessible but ultimately sacrifices have to be made in the cover available as a result.
Take limited-period cover plans, for example, where a policy pays out for a maximum period between two and five years. There has been a notable increase in the number of these products making their way into the market over the last 12 months.
Limited-period payment plans help provide simple and very cost-effective solutions, often with very attractive options such as age-costed premiums, own-occupation definitions of incapacity, short deferred periods and a varying range of minimum and maximum monthly benefits.
The customer only has a couple of decisions to make (how much cover they want and over what claim period) before deciding which option is best suited to their needs.
Add to this simplified application forms backed up by tele-underwriting by a qualified nurse and suddenly the process for the adviser becomes a lot simpler.
The key point here is that although many of these products are excellent additions to the market, they are targeted at a very specific market.
Therefore, are advisers who are looking to enter this arena clear on the potential risk of any reduced levels of cover on offer?
Where can technology help?
Technology can help guide advisers through this changing landscape. The challenge will be how to design a technology solution that is agile enough to adapt to these product innovations.
The problem with many product innovations is that they may not always be common knowledge to advisers. This may largely be because they are not easily accessible via an advisers existing quote mechanism.
Portal services are designed to provide a comparison on price and can also provide quote capability on complex or non-standard products but the challenge facing advisers seems to be before they get to using a portal.
We are witnessing more integration between research and quotation systems which should help overcome this problem. Some adviser back-office platforms are increasingly looking to provide a fully integrated technology solution which links the quote comparison neatly back to the more complex aspects of these products and permits initial filtering on like-forlike products before comparing price.
Despite the valiant efforts of some industry figures, there is still a long way to go to raise awareness among consumers of the importance of including income protection within their financial planning.
But the next 12 months will, I suspect, be a very interesting period of continued product innovation with software provider and portal developments stepping up a gear to meet the challenges and to help create additional adviser opportunities.