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Is protection really dying?

The future for the protection market lies in innovation.

We have seen change and speculation affect the protection sector of late, challenging providers’ commitment to and investment in protection and raising concerns for distributors. However, we see a great future in the market, albeit not for all players.

Facts supporting the argument that protection is dying are compelling. In the last five years, new annual premiums have flatlined. The mortgage market – the major sales trigger – has collapsed, the competitiveness of premiums has further intensified and the retail distribution review will result in possibly more than 30 per cent of advisers exiting the industry. Protection is also capital-intensive, with capital strains of around 30 times a monthly premium.

This dire prognosis is driven by legacy mindsets, products, systems and processes. Is it really that bad?

Protection has enormous potential. According to Swiss Re, the protection gap has increased to £2.4tn for lump sum and £900bn for income protection. Consumers have more than £1.46tn of personal debt, equating to twice average earnings, and are recognising their personal responsibilities. More than half the adult population have no protection and those with cover invariably have only one policy that pays an inadequate sum assured on death. The risks from serious illness, occupational disability and unemployment are much greater than death.

The future of the protection market depends upon fresh thinking and strongly aligned distribution partnerships. Embracing technology – to simplify and lower the costs of sales of distributors and providers, as well as opening up compelling cross-selling opportunities – is the key differentiator.

The best provider systems transform the sales process so that applicants can receive an immediate decision online and allow distributors to get real-time information on the pipeline process without calling the insurer. This significantly reduces costs across the value chain.

Technology can improve provider and distributor performance but the value is added with multi-benefits. The best of the best providers use one application process to render the purchase experience seamless and low cost, making protection a genuinely valuable customer, distributor and provider proposition.

The future also lies in consumer-driven innovation. Customers must be at the heart of any new proposition and they invariably assume our products confer greater peace of mind than they do.

How else could one explain the fact 55 per cent of critical-illness total permanent disability claims are declined? Legacy thinking is to improve the TPD definition wording, whereas fresh customer-driven thinking is to understand the underlying cause of the problem.

Protection is evolving and providers with the right mindsets and technology can see it has a great future.

Martin Werth is managing director of Fortis Life UK


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

  1. Paul U Thompson 20th July 2010 at 3:56 pm

    A thoughtful article. If it is right that customers assume protection products confer greater peace of mind than they do, this is primarily the fault of the distribution process, which hasn’t explained it properly to the customer at the point of sale (accepting that some develop short term memory problems).
    Another reason for 55% of CI & TPD claims being declined could be that a suspected illness/condition triggered the purchase and wasn’t declared.
    The dramatic reduction in sales is in no small part due to the collapse of the mortgage market, as the need for a mortgage was a big trigger to purchase/be offered protection.
    The innovation needs to focus on how to trigger the need in the consumers mind. They won’t just sacrifice themselves without good cause.

  2. paolo standerwick 20th July 2010 at 3:59 pm

    Remember the old adage ‘Life Assurance is always sold and never bought’.

    most people will avoid costs of any type if it comes out of their bank accounts. Hence why the RDR is flawed just like FSA has flawed ideas about its’ usefulness.

  3. If the FSA is on a mission, and do have their way, they will pass on the advice process for financial products to the banks post RDR – an objective of the Regulator following RDR – this will exclude a large part of the public from obtaining good quality independent advice – the regulator has its blinkers on believing that everyone will pay fees – the shock will come when the FSA or its equivalent realise that it is a lie, and is a theory which is flawed. If you are listening FSA you should escape the Canary Wharf ivory tower and ask the public yourselves rather than get another poll company at exorbitant costs to tell you what you want to hear, as you are not a good listener.

    IFA models will contract unless we can rely on the larger industry players (The Life Companies) who are bemoaning their lot at the moment with contracting markets –why not start to get busy lobbying the regulator, you have more influence than a bunch of sole traders, the regulator does not as a matter of policy listen to the IFA community it only tells – but will listen to the Plc’s.

    If the advisory planet changes in the UK, so will the way in which the Plc’s get their products distributed. Historically the Life companies have been supportive – our demise as IFA’s could be their own. If the life and investment companies in the UK want to see the financial distribution shrink then do nothing – as that probably is what the regulator would prefer.

    It will be seen if the companies concerned are up to the challenge by playing their part to help preserve and grow the distribution channels as happened in the past.

  4. Martin is right, althlough a recocvery o the economy/mortsgge arlet medium term will help. Consolidation casused by FP& AXA under Reslution, Bright Grey/ScotProv (and poss Royal Liver) and Aegon’s possible withdrawal is also good news for everyone who is left…

  5. Julian Stevens 21st July 2010 at 3:30 pm

    Maybe the life offices should try to design some rather harder hitting ad’s about the potentially huge difference that life cover can make to the financial wellbeing of families who lose the principal breadwinner.

    Remember those adverts featuring a pair of pictures of two retired couples? One couple were lounging in the sunshine on the deck of a yacht, sipping cocktails and chatting with their neighbours on the next boat.

    The other couple were sat on deckchairs, huddled behind a windbreak on a bleak and empty beach, probably somewhere on the NE coast of England.

    It certainly presented a strong and striking message ~ what sort of retirement do YOU want, Mr & Mrs Reader? Well, do something about it and call this number NOW.

    As for claims being declined due to non-disclosure of pre-extant medical conditions, I side absolutely with the life companies. Non-disclosure is effectively fraud.

    Then again, a number of life companies have done the industry no favours by making the process of claiming on a CI policy so unreasonably difficult that the policyholders would surely tell anyone else not to bother taking one out.

  6. We have plenty of customers for pure protection but most companies have withdrawn the products. As was said ‘it’s sold not bought’ and we could sell lots of it.

  7. Daren McCormick 23rd July 2010 at 12:27 pm

    I agree with all that Martin has said and strongly believe that a collaborative approach with providers and distributors working together, especially in the marketing arena, will be of immense value for the future.

    Currently, a lot of time, money and effort is being applied to try and make a fair buck in this industry, generally around IT systems and processes. This is while the market is shrinking. But the opportunity IS widening and it baffles me that the same level of time, money and effort isn’t being applied to understand consumers and their buying behaviours; ultimately getting more of them knocking on your front door.

    This could be that distributors haven’t the resource (financially and skilled) to do this and the providers leave them to it and don’t interfere. Hence the collaborative approach…….

    Whatever the reasons, I think it’s vital to take a fresh look at how we all communicate within this market.

    Colleagues here have talked about drivers of markets i.e. mortgages, and some I talk to are resolved to the fact that we’re doomed until this sorts itself out over the passage of time. Yet there are a whole host of drivers that are under explored that could increase market activity. And, understanding and then educating the consumer must be central to all of this.

    Slick back/front office systems will help to enhance consumer journeys and increase provider/distributor profits but more work is required pre-sale to educate consumers and raise awareness of the importance of protection.

    Other insurance products have a greater consumer exposure, car, house, boiler, and plumbing as examples. I’m aware that some of these have legal sales edges but you can’t get away from the fact that the consequences of no insurance are in every corner of the consumers’ life through media, lifestyle and friends and family. The products are talked about, people have been victims or know victims and documentaries are made for prime time television. All playing on the emotion of fear that plants the “I better get insurance” seed.

    Do marketing teams really fear playing on people’s vulnerabilities? Well they seem to in the ‘death’ department.

    I believe that Julian’s point is very valid. Let’s see more media coverage, more documentaries (Homes from Hell style, get that Dominic bloke on the case) and more hard hitting marketing campaigns highlighting the harsh realities of having no protection.

    So let’s get educating, as an industry, and get out of this mess. Let’s stop putting all our focus on the current drivers and be proactive on a consumer level………..whilst working on Martin’s points, of course.

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