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Lower the lapses

Times are going to get tough. Protection sales have escaped the ravages of the credit crunch and recession so far, while mortgage and investments have taken an almighty battering, but this period of calm can’t last forever. Not only will sales be hit at some point but also lapse rates will start to increase as more people lose their jobs and try to save money by cancelling their protection policies.

How do we prevent this damaging turn of events? One way is to get the message to the public and clients that the current economic climate is a terrible time to be cancelling financial protection. Now is a time to be consolidating and safeguarding, not cutting and running. If a customer cancels their policy, and instead says that they plan to take one out again in less turbulent times, there’s the very real danger that they policy will be more expensive and less comprehensive – that is assuming their health hasn’t deteriorated and they are able to take one out at all. And if they have to claim in the period after they have cancelled their policy, they could be facing a financial nightmare.

These are all salient points to be making but the immediate opportunity to make a difference is to maximise what advisers do best – give advice. Anyone who competes solely on price is asking for a lapsed policy. If an adviser does not add value, the customer will call a non-adviser, or head to a price comparison website, and find a cheaper policy. However, they are far less likely to lapse a policy where they understand and appreciate the value. If the adviser has added value by offering trust advice, or discussed the free additional benefits, such as Red Arc, which come with many policies, the customer will understand that protection is not a product where they should flit to and fro in reaction to the changes in the financial climate.

Importantly, there is increasing evidence that lapse rates are lowest for policies that differentiate significantly. At Lifesearch, anecdotal evidence from advisers shows that Real Life Cover has some of the lowest lapse rate of any product we sell. Consumers have found its comprehensiveness to be reassuring in a time of financial turmoil. Backing this up, PruProtect have compelling evidence that those who engage with their vitality program are 40 per cent less likely to lapse.

The point is that if advisers sell the same products that everyone else sells – especially life cover – there is little room to add value and increasingly the critical buying factor comes down to price. Offering a unique and better product genuinely adds value and, if it is not sold by non-advisers and websites, the consumer is less likely to shop around and wander over to a rival.

This could prove to be the difference that decides who sinks and who swims in the coming months and years. Value not price is the important factor and consumers are savvy enough to realise that. We just need to give them the choice.

Matt Morris is senior policy Adviser at Lifesearch

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