Who else is worried that new protection business has halved in 8 years? In 2011 new annual premiums were just 73 per cent of their 2003 level – 56 per cent after adjusting for RPI. In addition, the average premium has been shrinking, which means advisers and insurers have to do the same amount of work for less. Not surprisingly this has resulted in insurer exit and consolidation.
What can we do to address this? More of the same doesn’t work. As Einstein said “insanity is doing the same thing over and over again and expecting different results.” The industry is on a downwards trajectory, with companies fixated by price and market share. With a widening protection gap and the need for greater personal responsibility, the industry requires visionary leadership.
Protection is a core necessity and should be considered at every financial services consumer touch point. We must therefore unclog existing channels to market and open new ones. In all of the following areas we need to consider how to switch on:-
Wealth advisers and mortgage brokers who avoid protection – this requires process simplicity, a good customer buying experience, low sales opportunity cost, low sales regulatory risk
Consumers who want to self-serve – this requires increased consumer awareness, a simple customer journey, choice of insurers and immediacy of buying
Brandassurers whose sales have disappointed – this requires credible brand stretch, timely engagement, choice of insurers, simplicity and value
Future up-sales – this requires clarity of customer ownership and responsibility, customer awareness of cover gaps, a communications plan and simplicity of process
IP to fill vacuum left by PPI – this requires increased consumer awareness, consumer trust, timely engagement, simplicity of sales process
The key themes are sales simplicity, personalised choice, good customer buying experience and effective post-sale engagement. Much of this goes beyond one company and requires the industry to deliver a clear and consistent message.
For advisers the sales process is far from simple. Peter Chadborn’s excellent article Collect data to meet needs identified the many components of an efficient process. He noted customer disillusion if the final terms are significantly higher than the initial premium. His efficient process requires him to email three potential providers with the clients’ specific health situation in order to obtain more accurate terms. Other protection advisers do the same, but usually on the phone and spend between an hour and two depending on their clients’ health. What costs advisers also costs insurers. However, anything less than this, which bases the insurer recommendation on the initial quote, may fall short of best advice should the final terms be loaded. And how do we expect our customers to feel when they’re told they’ve been rated?
To encourage more wealth management advisers to sell protection, they need to be confident that protection won’t strain their established customer relationship and that the sales and regulatory opportunity cost is not too high. Mortgage brokers will also weigh up the opportunity cost. For both we have a long way to go to streamline the pre-app process. For income protection the gap is even larger. By removing the veil of underwriting complexity and perceived insurer prejudices, advisers will have more time to focus on value not price.
All evidence points to consumers doing more research online, but this not converting into online sales. My guesstimate of the market potential is £150m new AP, some of which will replace existing offline new business. The right solution needs both effective emotional engagement and buying simplicity. Customers require confidence they’re buying the right product that will meet their needs without “get-out” from inadvertent non-disclosure, or policy small print. Their benchmark for sales simplicity is buying motor or home from a price comparison site, where they get personalised terms from a choice of insurers with the ability to click and buy. Given that protection is not compulsory, we need to make the customer journey at least as quick and easy. Again in this regard we have a long way to go. And evidence shows that consumers don’t buy the cheapest, but look for value.
Brandassurers understand and are trusted by their customers, yet to-date generally haven’t been successful in protection, even where they have in GI. However, as they widen their access points, to include mortgages and loans, this may present new opportunities. But their customers expect choice, value and a simple sales journey.
The post-sale up-sales opportunities are huge, as most consumers just buy life only. This requires clarity of responsibility and effective communication, which both informs and educates on the scope of existing and ways to affordably bridge essential cover gaps. Invariably advisers and insurers are too transactional and need to rethink their longer term customer engagement strategy. I have argued that those selling long term business should provide annual benefit statements, which are consistent in design and language. That would be a good start.
In summary, we need to step out of our hole and think again. The future is about making what we do easier for customers. We need visionaries, probably from outside our industry. How would Google or Apple respond? How can technology work harder to make the complex simple and the simple interesting? I would implore every CEO to consider whether they’ve done enough. To quote Einstein again “Any intelligent fool can make things bigger and more complex. It takes a touch of genius — and a lot of courage — to move in the opposite direction”. And that’s where the growth will come from.
Martin Werth is managing director of Living Benefits