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Protection Edge: Jason King

Protection has long been regarded as the poor relation of financial planning. Undervalued by providers and advisers alike in the scramble for market share of pensions and investments to get at funds under management. It is, therefore, unsurprising then that consumers also undervalue protection and that there is an estimated 2.2tn protection gap in the UK.

However, over the past five years, UK life insurers have woken up to the potential of this market. Today, most are either already in the market with viable propositions or about to relaunch. Moreover, the last 12 months have seen some very exciting changes in the protection arena and this look set to hot up in 2005 as we see the introduction of FSA regulation and depolarisation.

Light regulation, lack of regulatory price caps, easy policy maintenance and low risk of client litigation mean that protection is seen as one few remaining product areas where it is relatively easy and profitable for providers to do business.

Yet this does not mean that lazy providers can get away with a poor proposition. Ind-eed, the protection market has become so efficient that prov-iders have to ensure that not only their prices are competitive but that their product design, infrastructure, service and IT systems are all up to scratch. When it comes to new product launches, there is a natural urge for the provider to insist that their product is unique in some way, whether that be product design, pricing or processing systems and capability, a bell here – a whistle there. However, another option is to stick to the basics and get a robust, well-priced product. After all, in the eye of many consumers, the most fundamental basic is price.

Standard Life and Scottish Equitable have signalled their intention to target the protection market with the launch of new online processing systems. The product remains the same but the method of delivery has certainly improved greatly. Axa, Prudential and Zurich all have completely new propositions in the pipeline, which propose to offer the consumer something new in the way of product design and pricing. Furthermore, Legal & General is launching a new interactive online system to replace its tried and tested
Olta platform. Bright Grey also has an on line system waiting in the wings.

However, the most interesting proposition of recent times has come from Royal Liver. A completely new ent-rant, it has been able to come to the IFA market in a few short months with a unique product in that it has been constructed by bolting together services from third-party providers on a best of breed basis. Marlborough Stirling has provided the back-office and admin systems, Otter Risk Solutions the underwriting, Unum Provident the income protection claims handling and Pinnacle the unemployment cover. Most entrants to the protection market have had to either build on and develop legacy systems or spend considerable time and money assembling the req-uired infrastructure and skills, both of which bring their own unique set of problems.

Some providers are also floating the idea of experim-enting with phone-based und-erwriting, whereby the IFA gathers limited information and arranges a time for the underwriter to call the client to obtain more detailed information. This would help IFAs manage the risk of non-disclosure while saving all parties precious time in the new business and underwriting process, welcome news at a time when the sales process is lengthening as a result of regulation.
This approach would req-uire the IFAs to learn to trust providers again when it comes to meeting client expectations. Certainly, it will not suit all IFAs but it is innovative and therefore should be welcomed.
So where does this leave the IFA and, more importantly, the client? Well, in a very strong position. There is nothing like competition to stimulate the marketplace and for the first time in a long time, the number of providers competing in this market is growing and there is true innovation.

As providers compete with each other for market share, we should see keener prices, better products, better service and better commission. Multi- ties are just around the corner and providers know that if they want to join the party, they must satisfy the demands of not just IFAs but also the banks, soc-ieties and supermarkets.

The aim has to be to grow the marketplace and start to close the protection gap. If we all do our jobs, there is tremendous potential for the market to grow and every participant can meet their business objectives. If we fail in this respect, we will see the opposite of the current scenario as disappointed providers and distributors leave the market and we all end up back where we started.

Jason King is managing director of Life Policies Direct

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