It is a market that has been completely commoditised, that is price-driven, offers low expectations of the policy and the claims’ experience (particularly as policyholders can sacrifice key features to keep premiums affordable). Car insurance is the industry’s only compulsory insurance.
Around 70 per cent of car insurance is sold online, providing a clear insight as to what will happen to mass-market products when the retail distribution review requires advice to be paid for rather than funded through commission. It is not only the range of protection products available but also the complexity of each product grouping that makes protection a more challenging commodity. The mass market might be able to choose between a £75 or £100 excess but it is significantly more challenging when faced with the key features of critical illness versus term.
Time and again, we hear of people going without protection rather than facing up to the difficult decision-making and that is before getting down to the detail of comparable policies, where an experienced eye can help identify the best policy for a client’s circumstances and pocket, and ensure the client is revealing all relevant medical details. If one in four policyholders is already rejected at the point of claim, often because of non-disclosure of a medical details, but also because they have not understood the terms of what they have bought, and/or have gone ahead without seeking proper advice, won’t the RDR’s fee rather than transactional basis for advice exacerbate this figure?
Ten years ago, customers would have visited a tied salesperson. The choice of products would have been limited but the client would have received the information to make an informed decision. In the future, as the pressure mounts to commoditise these products, it is more likely to be a call centre, and rather than focusing on benefits, they will focus on the price, like the car insurers.
If products and markets are to avoid extinction, they need to evolve. Rather than follow the motor insurance model and commoditising protection, the investment marketplace is a far superior role model, having grasped open architecture with relish, offering consumers the ability to mix and match shares, trust and investment funds and where customers are offered more tailored options to suit their specific requirements. Is this the way forward for the protection market?
The protection market has reached a critical point. There is clearly a need for innovation which makes buying easier and selling simpler and more profitable for all parties but there is also an urgent need to rebuild consumer trust and this means shifting the focus from price to suitability.
Crucially, the protection market requires manufacturers and intermediaries to simultaneously develop a greater understanding of how to sell protection products.
Gerry O’Brien is chief executive of Home of Choice