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Peter Le Beau: Let’s make it ridiculously easy to buy protection

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I’m going to begin with a revelation that will surprise all who know us – I was in a pub with Protection Review chief executive Kevin Carr the other day.

That of itself surprises no one but we were both drinking soft drinks. Having decided Arsenal have basically got the Champions League and Premiership sewn up, our conversation turned to the industry. Kevin was musing over the introduction of over- 30s plans. It is a fascinating development to my mind simply because it emphasises that the big obstacle to buying insurance is delay.

We live in a word of instant gratification because of the growth of online propositions.

Part of my portfolio of roles is working with groups to encourage blue sky thinking. I was imagining doing this for the protection industry, in particular how the buying process could be made easier and faster, and it would not take a bright group of people long to spot the biggest obstacle to this easy buy scenario is underwriting.

As someone who headed a major reassurer’s underwriting operation in the UK for many years, this is a hard admission to make. If I was leading such a group, my next action would be to encourage them to think about what would happen if we did not underwrite at all.

In the early 1980s, this happened for a time when the then Government introduced mortgage interest relief at source and the industry, which was largely predicated around mortgage endowments, was flooded with applications from people wanting to remortgage and switch their insurance cover.

Some companies, even some extremely traditional and conservative companies effectively dispensed with underwriting not realising that there were some sales people and brokers (for that was what they were then) who would trawl hospices and seek out the terminally ill to get them to remortgage their house. Yes, they really did.

Now you see why the Financial Services Act came to pass four years late. Interestingly, the CMI committee of the Institute of Actuaries set up an investigation into the experience of this cohort and found that over time – after a not unsurprising spike early in the study – mortality experience settled to expected levels. That is a lesson I do not think the industry ever took fully on board.

So the message is make policies ridiculously easy to buy so that there is no delay in completion but stop obvious anti-selection by those who might be declined or heavily rated. Easy isn’t it?

If Kevin and I had stayed in the pub long enough we could have sorted world poverty and global warming too. But there is a serious morsel for the industry to chew over in what I have said.

Peter Le Beau is managing director of Le Beau Visage

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Interesting……would a provider which completely disregarded the underwriting process, saving costs on underwriters salaries, GP reports, staff to chase said GP reports, postage relating to adverse terms etc etc etc save enough money to enable them to keep competitively priced whilst taking a hit on providing cover to the more high risk clientele?

  2. Very interesting article. The question that instantly springs to mind is what would happen to the average premium? I suspect the premium would rise slightly and that would highlight the biggest hurdle for protection, cost! To be honest i disagree with the articles point that the biggest hurdle for protection sales is the underwriting. I have found that most people are happy to go through the underwriting once they have bought into taking out cover. Getting past the initial quotes for CIC and IP is by far a bigger hurdle.

    My humble opinion as usual.

  3. Good article, and one I quite like, based on people don’t die as easily as they used to (sorry for the bluntness), however it would be a huge leap of faith for a provider to back and put in place

    And as Nick has said, people still need to get past the costs, but I suppose those who are in good health wont mind going through the underwriting, where as those who may be loaded or declined cover and in poor health my jump at the chance to get cover.

  4. Peter. Thanks for this. The main benefit of this is that with a simple sale, instant cover, then as well as stripping out the underwriting costs, the biggest benefit will be to reduce the commission to presumably next to nothing. This has a far bigger impact upon the price than underwring costs.

    Must say though that I think the biggest barrier is reluctance to even consider buying the product, as opposed to the process once the customer has committed.

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