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Hard to make a profit on PHI plans

I was interested to read the Nic Cicutti column about PHI last week in Money Marketing. I have taken to questioning myself recently over why I do not arrange many PHI contracts for my clients.

My conclusion was a combination of the points made in the article. PHI really can take an incredible amount of time to get up and running and this time factor stretches across the whole process – from thoroughly researching the market and ensuring compatibility with the client and their profession.

Through the very long application forms, with some very detailed and complex questions to answer, to having the client attend appropriate medicals and having the involved medical practitioners complete their bits. Through underwriting the case, including extra financial information (the potential sum assured, that is, if they were to claim day one until end of the contract, can be huge, especially if indexing, thus triggering insurer and re-assurer extra Qs.

Then explaining to the client the frequent ratings and/or exclusions applied – not to mention querying the insurer – it is common to find an exclusion applied for a condition and a rating for the same thing (surely if excluded, the condition should not attract a rating, is my personal opinion).

Bear in mind the above does not consider the usual cock-ups that are a day-to-day occurrence with insurers these days such as losing parts of the application, losing ID, not linking the PHI app with the concurrent life insurance app, failing to scan all pages of the app in, internet web application system going down midway through keying in data, etc etc. Or the work involved in actually getting a claim upheld.

Based on the above, it would not be an outrageous suggestion to consider: (approximately) one hour initial meeting, one hour research & prep, one hour explaining to client meeting, one hour of subsequent paperwork, one hour of total admin, 30 minutes with client. Add in a bit of ad hoc work, such as talking to an underwriter, re-issuing papers to a client, chasing GPs, etc, and you can see how it easily takes five to six hours minimum to do a case. Based on an hourly rate (whether charged to the client as an hourly fee or as a project) of, say, £125ph and the fee would be somewhere around £600-£750. You can see how it could easily creep to £1,000 if taking longer or charging more (even taking into account admin elements charged at admin rates)

But whatever way you slice it, charging £1,000 or even just £500 for a policy with a perceived cost (that is, the premiums) of, say, £50 a month is a lot of money that many people to struggle to see the value in.

In “the old days”, if a £50 a month policy paid £600-£1,000 commission, say, then an IFA would do it. If I go to my client and say that the price is not £50pm but £40, as there is no commission, their perception is a £10 a month saving is not worth having when compared with writing a cheque for £500 or £1,000 now.

Don’t get me wrong. We still do PHI and for those clients who understand the savings over a lifetime of a policy of nil commission and who can afford the upfront fee, they do buy. But the number of PHI polices I arrange (and I am a dyed in the wool believer in ‘insurance) is nowhere near the level it was five-10 years ago.

Even more of a conundrum is the amount of policies I come across when reviewing a client situation that are, for example, old Axa or Sun Life whole-of-life plans. They have the famous any-occupation definition, thus meaning a full benefit claim for anyone in anything but a very menial office based job is unlikely. When faced with the fact that their existing plan, that they have been paying for years, is next to worthless and that to remedy it will cost, a, a new fee and, b, higher premiums, it is understandable that so many people then “mistrust” (from your article and quotes) both insurers and advisers and “don’t bother” from here on in.

So while I agree with your last paragraph in the article that the PHI providers and insurers have been putting their profits at the expense of consumer needs which has harmed PHI take-up and consumer understanding, as a small businessman, I find it is very hard to make a profit myself on arranging a PHI contract and while I care about my clients, I am not here to act as a charity to them and their families.

I need to be able to make a profit on each transaction or piece of planning I am involved in (excepting the odd piece of pro bono). If I could find a “PHI” specialist to outsource to, like I do with mortgages or pension transfers or PMI, I would. (Perhaps I have spotted a niche I could fill.)

Ian Green

IFA, London

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