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Neil McCarthy: Time for a protection make-over

Innovation in distribution rather than product design could give the flagging protection market a much-needed boost.

Bond bubble bursting?

The half year figures from insurers confirmed the fact that protection business in the UK is in slight decline.

Pundits thought that volumes in the first half of this year would be lower due to pipeline cases going through in December to beat the gender re-pricing. But they also anticipated a steady increase in revenue as a result of higher underlying prices, increased activity from advisers in the post-RDR world and possibly increased mortgage activity. This doesn’t seem to have happened yet.

So are we seeing the life market in terminal decline? Are we just not seeing enough emphasis in recommending the range of protection products hard enough? Or is it that clients are just not interested in our solutions?

To answer these, I don’t think the life market is in terminal decline and I don’t think advisers are poorer at recommending protection products. But I do think that the solutions we have are not grabbing the attention of consumers. Perhaps they never did, but in today’s sales environment where we need to fight for every penny of someone’s purse, the actual product solutions aren’t attractive enough.

Fundamentally we are selling the same products as we were 25 years ago to an audience that is much more demanding and critical of the financial services industry. This audience expects a lot more from us. So with no real developments from the providers will we see the market being influenced by other distributors that that will help simplify the way consumers can buy different elements of protection?

Utilising “big data” is cited as an opportunity to enhance and simplify the traditional underwriting approach and use information readily available to analyse the risk in a different way.

For example, looking at prescription databases, analysing income streams, reviewing social media sites and checking motor insurer databases – or any number of available sets of data – may give a better risk profile than the current costly application approach.

A new approach – providing immediate cover with a simpler, understandable benefit structure – would be game changing in the UK. It will probably come from the most unexpected source.    

My feeling is that the appetite to make such significant changes isn’t on the agenda of most providers. The existing protection product sets, with the exception of PruProtect’s vitality options, mean that consumers don’t interact regular with the benefits of the product. People largely buy a protection product and forget about it – which is perfectly satisfactory for many. 

But we have to sell what we currently have, so can we make the products more relevant to potential new clients? Reviewing our approach of which benefits are prioritised may help to deliver a smaller package of products that integrate elements of income protection, critical-illness and then life cover – using family income benefit options can help to reduce costs.

I don’t think we are going to see a sudden increase in new business sales in the second half of the year, and I can’t see the industry collaborating to increase awareness or simplify the processes.

The most positive impact will be from local advisers in continuing to identify needs and finding innovative ways of selling protection in a cost effective way, and from the online sites marketing effectively to their customer bases and delivering an easy online journey.           

Neil McCarthy is sales & marketing director at Direct Life & Pension Services


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