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Protection Brief: Why are mutuals leading the way for protection innovation?

Without innovation, there is a risk that over time products and services will stop being relevant to the needs of their target audience. 

The protection market has often been described as being stagnant, with providers more content to tweak criteria or compete on price, rather than introduce really eye-catching innovation.

It has been a while since we saw any really significant innovation in the protection market but a lot of the innovation we have seen in recent years has come from some of the smaller mutual societies, rather than the market leading companies.

According to the Association of Financial Mutuals, the average cost of paying a dividend to shareholders in publicly listed insurance companies is 3p for every £1 of premiums. Without the cost of dividend payments to shareholders, it argues that mutuals have more scope to take a longer-term view and design innovative products with customer needs in mind.

“Mutuals have greater freedom to innovate,” says AFM chief executive Martin Shaw. “They are not constrained by having to show on a quarterly basis that they are saving money. They can take a longer term view.”

“There’s not really too much debate in my mind that mutuals are more ‘customer-centric’ than many larger insurers,” says Exeter Family Friendly brand & marketing manager Nick Jones. “While a PLC ultimately exists to make a profit and deliver a return for shareholders, we’re different. Success for us is delivering quality products and service to customers at the right price. 

“Sure, we have to ensure we don’t make a loss along the way, but for us and many similar mutual insurers, success is a paid claim.”

Jones believes that mutuals are more nimble than the bigger PLCs that can be slow to react because of their complex structures of command and drawn out processes. “We spot opportunities or ways to improve our proposition and we go for it,” he says. “A simple decision making process helps and we don’t get lost in layers of red tape as I’m sure many larger insurers do.”

But being a mutual has its challenges. “Regardless of ambition, growth plans often have to be tempered with a pragmatism. We have to make sensible and prudent decisions based on the fact that we are owned by our members, but you could argue this is simply the right way to do business,” says Jones.

But the counter-argument is that to bring any great idea successfully to the market, a provider needs financial backing and the resources to support it. PLCs will constantly have the scale and resources to throw behind innovation rather than restricting themselves to one-off innovations.

PruProtect head of account development Phil Jeynes says his firm has a reputation for innovation but is not a mutual. “We have the financial backing from our parent company and that is important because you have to have financial support behind you to do anything new,” he says.

Jeynes points out that innovative products require greater support for advisers than more conventional products. “The lack of innovation in the protection market is a chicken and egg situation. Because there has not been a great deal of innovation, advisers get into a routine in the way they talk to clients about products. In the past they would have a representative of each firm calling in for a cup of coffee to explain their products but that doesn’t happen now.

“The other thing that can hamper innovation is systems – how you go about capturing info from the customer. We have to ensure our products and systems fit into the way advisers do their business.”

LV= protection proposition manager Chris McNab believes innovation is driven by a company’s values, regardless of its ownership structure. He says: “I’m not sure it makes much difference whether a company is a PLC or a mutual. It’s about identifying that different people have different needs. There are customers who are looking for simplicity but equally there are others who have more complex financial needs – and not everyone has access to the same distribution.”

McNab says income protection – both individual and group schemes run through employers – is primarily sold through advisers. “Historically it has never been a product for customers to do direct, as it is a complex product where needs depends on people’s sick pay arrangements and the term that they need,” he says.

But Deloitte insurance partner Richard Badden is seeing more innovation in the protection market by mutuals providing direct to consumer business. 

“Mutuals are smaller, have less baggage and can get something quickly to the direct to consumer market with the help of reinsurers,” says Badden. “Yes, there is a lot of cost involved in developing products, compliance and systems but the capital cost is partly financed by the relationship with the reinsurer,” he says.

Legal & General retail protection product director Bonnie Burns points out that regardless of company structure, innovations do need to be of genuine use to advisers and consumers.

“Providers have a duty to be innovative in order to develop less complex products which better meet customers’ needs. 

“However, innovation for the sake of innovation, or trying too hard to push ahead of the competition, should be avoided as products and the application process can become overly complex. 

“This can ultimately lead to customers being reluctant to protect themselves,” says Burns. She says advisers are likely to spot pointless additions to policies that do not offer their clients value for money.

Foresters Friendly Society marketing director Neil Armitage points out that mutuals are able to innovate and give value for money by providing their members with non-regulated benefits such as discretionary grants.

Highclere Financial Services partner Alan Lakey highlights various innovations that mutuals such as LV=, Exeter Friendly Society and British Friendly have made in the protection market.  “But people can then say look at PruProtect, so there is always a counter-argument,” he says.

Lakey agrees with Jones and Badden that because mutuals tend to be small, they find it easier to manoeuvre than the big PLCs.

“I think it’s easier for mutuals to be innovative because they are smaller. They have to be forward thinking because they can’t compete with the big boys – but they can compete in terms of innovation,” he says.

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