Protection research manager – Hargreaves Lansdown
Director of intermediary business – Liverpool Victoria
Insurance director – Torquil Clark Life
In the run-up to the Budget there is speculation that the Treasury may be about to go back on last autumn’s U-turn on pension term assurance and allow it to remain in some form. Is the proposal for self-certification a practical or workable solution for PTA?
Briggs:The Treasury can, and will, do whatever it wants on this issue. There is no longer any point in pretending that pension simplification has brought all previous legislation together in one lovely and simple regime that consumers understand.
As things stand, a company can sponsor a group death in service scheme that, in theory, imposes few limits on the sum assured for individuals. I can see that the spirit of pension legislation is to encourage savings, so maybe the self-certification route is the path of least resistance?
Of course, self-certification can work, we can all squeeze another little bit of wording into the application form can’t we? It is a bit lame though and totally against the spirit of simplification, if there ever was one.
Tragheim: We need to know a lot more about the proposed self-certification scheme before we can be sure whether it is the best solution. At the moment, it appears that the Treasury is considering a scheme in which consumers have to certify that they are contributing to a pension but would not necessary have to prove this to take out a PTA policy. This is hugely preferable to the noises they were making about the abolition of PTA.
Getting rid of the product altogether would leave many people high and dry, particularly those who do not have access to tax-advantaged life cover through occupational schemes.
The Government expressed concern in last year’s pre-Budget report that PTA products were being offered as personal pension arrangements eligible for pension tax relief. Self-certification could potentially be far more straightforward for consumers and advisers but it really depends on the small print coming out from the Treasury.
King: This would be another dramatic U-turn and demonstrates a lack of regard for the industry or the needs of the consumer by the Treasury as they do the hokey cokey with PTA.
Much depends on the practical implications, however, the principle of self-certification should not present a problem for most advisers. It could be as simple as an extra page on the application form or an electronic declaration. I am not a fan of yet more paperwork but PTA offers distinct advantages for most consumers so it would be an extra process worth the effort.
Prudential has ruffled a lot of feathers by claiming that £43.9bn worth of protection insurance claims have been turned down in the last five years. Will this have an impact on consumer perception of this industry? If so how damaging will it be? Briggs:
Briggs:The playground sneak rarely ever gets any sympathy and Prudential is no exception in this. A few weeks ago we held a focus group with a number of young couples to gauge their views on life insurance and other protection. It was not encouraging and the general perception is that insurance companies are pretty much the same and avoid paying out at all costs.
Prudential’s message was popular with the press because it is bad news but ultimately it will be tarred with the same brush. Prudential’s PR campaign has, undoubtedly, reinforced the negative message about protection and consumers are unlikely to differentiate and remember that Pru is meant to be the good guy. This is an own goal.
Tragheim: Prudential’s research was not that extensively reported outside of the trade press, so any impact on consumers is likely to be small. Financial advisers are consumers themselves as well as critical business partners for companies offering protection.
Protection is more import-ant than most consumers realise but remains complex and confusing for many. This type of research does little to dispel the reasons behind the ever widening protection gap, such as industry reputation and consumer mistrust.
King: All, except the Pru, seem to agree that it was a reckless and counter productive exercise to release such contentious data in isolation.
Critical-illness insurance has its faults, with non-disc-losure being the biggest issue that needs addressing. However, CI suffers badly at the hands of sections of the consumer press, who fail to take account of the majority of claims that are paid.
All Prudential would seem to have achieved here is provide the consumer with reasons not to buy insurance at all, which is not good for the consumer, the industry or the Pru.
Will the Office of Fair Trading decision to refer the payment protection insurance industry to the Competition Commission prompt a full overhaul of this business? Briggs:
Briggs:I certainly hope so as this is a classic demonstration of how not to treat customers fairly.
I am a big believer in market forces sorting out the best from the worst prod-ucts in any industry but this presumes that people understand what they’re looking at. If consumers really understood the issues behind the need to protect their income, then PPI probably would not exist, as no one would buy it.
But they do buy it and in very large amounts, so there is a clear need for some guidelines to protect consumers. However, there is an even bigger need to educate consumers about the issues behind income protection.
Tragheim: The Competition Commission has just begun the lengthy process of the PPI investigation, which will go on for many more months, maybe even years.
Things are undoubtedly going to change for the payment protection insurance business.
There is no choice about this but the choice for the industry lies in whether they wait for the commission’s findings, which could be two years away, or start changing practices now.
With the investigation warming up, public confidence in PPI is sure to take even more of a battering. There is a concern on the part of the commission, the OFT and Citizens Advice about bundling of PPI, and the commission element.
King: The PPI industry is set for a rocky ride as it faces up to investigations from many quarters.
The PPI industry is already changing in the face of scrutiny from within the industry and externally. Any product with such high margins and a com-plete lack of transparency is open to abuse. We have already seen some high-profile FSA censure on this product and significant changes are on the horizon for the manufacture and distribution of this product.
On the back of Just Retirement’s announcement that it is to launch into the protection market, do you think there is room for another provider in the protection market? Briggs:
Briggs:This sort of competition is to be welcomed and should be good for consumers. Survival of the fittest is rarely a bad concept in any market.
Competition is good for innovation, service levels and system efficiencies. On top of this, more ads and PR mean more consumer awareness and this has to be good, so long as it is not the negative sort that Prudential is in the doghouse for.
In any event, given that the protection gap is measured in the trillions, I suspect there is a little room in the market for another protection provider.
Tragheim: The protection market is buoyant and competition from another provider is healthy. The market will be looking to Just Retirement to see what it does next.
One key area in a competitive market is to deliver compelling and value-for-money protection propositions for consumers.
Some of our recent innovative added-value benefits, such as Extra Care and Healthy Steps, are examples of how Liverpool Victoria is building propositions that are more appealing than ever before.
We look forward to seeing what Just Retirement’s recent high-profile appointments will deliver in 2007 and beyond.
King: There seem to be more providers gearing up to enter the protection market than ever before and this can only be a good thing.
The last decade has seen many launches by new entrants and more established companies but we must not forget that we have also seen the waning and even departure of some high-profile names.
The product is regarded as fiercely competitive but there seems to be great appetite to get involved in the manufacture of protection products. There are certainly opportunities for new entrants to challenge the current market through both product and process innovation.
Does Just Retirement’s decision to confine its offering to people in retirement signal that providers are going to have to specialise to increase their share of the market? Briggs:
Briggs:I do not think this signals anything apart from the fact that Just Retirement has a ready-made database of clients who are around retirement. All successful businesses know their market well and this is the obvious way for it to start. This does not mean to say it will not spread into other areas if its formula proves to be successful.
Tragheim: The UK continues to be affected by low natural population growth, resulting in ageing of the population. In parallel to this, there is a clear need for people to save and prepare for retirement, with financial services and products at this lifestage a key area for growth.
However, this area of opportunity is not limited to those providers which have positioned themselves as purely focusing on retirement. There is a chance for all providers to develop innovative propositions and solutions to capture the imagination and requirements of consumers at this important lifestage.
King: The impact that other new entrants have had on the protection market would seem to indicate that this is not necessarily the case.
Most insurers seem to focus on either price or product differentiation to achieve their volume/profit aspirations.
New entrants need to realise that there are many different distribution models and more than just a low price is required to capture market share.
Product and process innovation, as well as a flexible customer service offering, are necessary if an insurer is to succeed.