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Martin Werth: Protection may never be this cheap again

This is a new column with a one year life span, focusing on the major changes that will impact on the protection market at the end of December 2012.  For advisers there are significant changes around the corner that can’t be ignored.

These offer a time constrained one-off opportunity this year, which could add significant business value, as well as provide a launch pad for 2013. 

The key changes are as follows:-

  • Uni-sex pricing – this will be in place by December 21, 2012 and will impact on price and underwriting.
  • Protection tax changes – from January 1, 2013 term and CI business will be taxed on profits, in the same way as income protection.  This will make the business less profitable for many insurers and as a result prices may rise.
  • RDR – from Jan 1, 2013 commission on retail investments will cease, but will continue for protection.  This should make protection sales more attractive, subject to the negative impact of the factors above.
  • MMR – The Consultation Paper, CP11/13 published last month proposes a pragmatic approach to ensuring mortgages remain affordable.  A consequence will be an extended mortgage sale leaving less opportunity for add-on protection sales.  This is expected to be implemented mid-2013.

A combination of uni-sex and protection tax changes could result in term and CI male premiums rising by 5 per cent and female premiums increasing by 20 per cent to 25 per cent.  Changes to joint life premiums may fall between the two.  Conversely, for income protection male premiums could increase by 10 per cent to 20 per cent, but females rates could fall by 15 per cent to 25 per cent.

How ready are you for the increase in life and CI premiums? 

Whilst advisers must ensure they are RDR ready, and avoid all unnecessary distractions, taking the right protection actions in 2012 will provide an ideal platform for the post RDR world.  Taking the right protection actions today should generate a value income source and enable advisers to grow and strengthen their customer base.   

This year protection presents a one-off time constrained customer opportunity.  Term and CI premiums will almost certainly never again be so cheap, so any short customer gaps should be filled in 2012.  This is the year to dent the Swiss Re £2.4 trillion protection gap and generate a valuable income stream. 

Advisers should review their existing client base and identify any unmet term and CI needs. In addition, this is the ideal marketing platform to find new customers, particularly females.  Your existing customers should not only review their own needs, but recommend their family and friends, so they too can benefit from this limited window. There is also a strong persistency message.  In spite of tough economic conditions, cancelling covers without replacing them, may be short-sighted. Good planning and communications will bring dividends in 2012 and broaden the customer base for 2013.

And what does this mean for 2013? To mitigate the transition to fees on retail investments, protection commission will be more critical, but this may not come from term and CI covers, given premiums will have risen. Instead in 2013 advisers should look to Income Protection. 

This is an ideal product to demonstrate the higher professional standards sort by RDR. This year advisers should improve their IP capability, so that it can play a more significant role post RDR.  IP is a huge untapped market, with a Swiss Re protection gap of £190 billion per annum and, closer to home, is a hole with many existing protection customers.  In 2013 bridging this gap would be a real win-win, demonstrating the value of advice, and strengthening your customer base. 

In summary, the changes in protection at the end of 2012 provide significant business opportunities today and an excellent post RDR launch platform in 2013.  To quote Mahatma Ghandi “The future depends on what we do in the present.”  With less than 12 months to go, the countdown has begun. 

Martin Werth is managing director of Living Benefits


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  1. Interesting article and important to point out the impact of the tax changes on prices in the the market. It’s right that there has been much interest in the gender directive – but the tax changes alone will have a much bigger impact. Our customers of both genders are going to be paying 10-15% more on average for the same amount of cover just because the extra tax.

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