Advisers say the challenges of selling protection have been laid bare after Lloyds Banking Group pulled out of standalone protection advice and Which? decided to scrap plans for a protection advice arm.
Last week, Money Marketing revealed Lloyds will no longer offer standalone advice on protection products through its Halifax, Lloyds Bank and Bank of Scotland branches. The move puts 1,200 branch staff at risk of redundancy. The bank will continue to offer protection advice alongside mortgage advice.
Meanwhile, Which? has decided not to provide protection advice to users of its Which? Mortgage Advice Service, with the consumer body continuing to refer protection queries to LifeSearch instead. The service had been due to launch this year.
Plan Money director Peter Chadborn says: “Both of these moves show how difficult it is to deliver a scalable protection solution, but also how difficult it can be to make protection profitable. Big players like Lloyds and Which? are saying it is too much of a lucky dip on whether protection cases go through and whether they will get paid on them.”
London & Country sales director Michael Aldridge says: “This is a shame for clients as it is another avenue for selling protection closed. It just shows how difficult it is to sell standalone protection, and that to train staff and retain them – and to give good quality advice – is a challenge.”
LifeSearch chief executive Tom Baigrie (pictured) says he cannot discuss the specifics of the Which? decision, but one of the factors driving the protection market is the regulatory burden associated with giving advice.
He says: “The key issue is that increased regulatory focus has meant the underlying truth that protection is more complex than it first looks is better understood by large company boards.
“The complexities of giving protection advice mean this is either a job you do properly or you do not do at all, as the regulatory and reputational risk is too great post-PPI.”
Where are the innovators?
Last week it was announced that Dr Marius Barnard, the architect of critical insurance, had died aged 87. It raises the question of where the next wave of innovation is coming from in the protection market.
There have been some recent developments that are moving the sector forward, such as the momentum behind investment-linked protection, where a shortfall in a client’s platform assets are covered upon death. There are also plans for whole-of-life cover to help people pay for long-term care, plus the Seven Families initiative, which aims to raise awareness by showing the difference an income protection payout can make in the event of illness or injury.
Another key development cited by advisers is UnderwriteMe, which offers fully underwritten prices at the point of sale.
Chief executive Martin Werth (pictured) argues the difficulty with selling protection stems from an inefficient sales process.
He says: “More than two-thirds of customers have some form of disclosure. The research we have done shows 60 per cent of advisers contact two or more insurers to get more relevant terms. This breaks the sales process, adding time and cost. Technology can be a smart enabler, allowing advisers to focus on advice.”
Chadborn believes the sales and application process is one of the key factors stalling progress, particularly as the RDR has forced advisers to focus on profitability and efficiency in other areas, such as pensions and investments.
He says: “Protection is a reluctant purchase; customers do not need an excuse to disengage. Yet the frustration is the big life offices talk about innovation but just tinker with a few critical-illness definitions. Protection now stands out as a sore thumb where you have to really motivate yourself to write the business. It is still a lot of work for very little.
“Something needs to happen because this is a downward spiral. Reinventing your products and adding CI conditions does nothing.”
Highclere Financial Services partner Alan Lakey shares Chadborn’s frustration. He says insurers are focused on the wrong things, such as making CI definitions more complex, rather than true innovation.
Lakey says: “The design of CI plans is nonsense. If we started today instead of back in 1983, they would not look anything like this.
“Providers feel like they need to play the game [by adding conditions] because they are not brave enough to do something about it. In the corporate world, being brave normally gets you shot. Ultimately, it is far better to be mediocre and get a bit of market share rather than stand out.”
RGA UK and Ireland chief marketing officer Richard Verdin says there is innovation within the protection space, such as the introduction of simple products and the shift to electronic applications, but this is largely about maintaining the status quo.
Verdin says: “People think about innovation in different terms. There is lots of innovation that has sustained the existing business models of today. What we haven’t seen in a long time is disruptive innovation.”
There is also a sense among some firms that big players are unwilling to embrace innovation and developments in technology as to do so would threaten their market share.
Baigrie says: “In any market, the established players like to see slow evolution, not revolution. New players want to disrupt, and that is wholly healthy. It is natural for established players to block progress when they feel threatened by it, but market forces will overcome this. Providers are playing for time.”
Verdin believes the protection market represents a classic business case for new players to come in and shake up the sector.
He adds: “Markets are dividing into either high-end propositions or cost leaders. It is the companies stuck in the middle that are starting to wane. That middle ground is going to become the graveyard of a lot of companies.”