It’s been a while since I wrote regularly for Money Marketing. I now work for a reinsurer, last time I was an insurer, before that an online broker and before that a face-to-face adviser.
What can I say, I get around. However ‘getting around’ has allowed me to understand many perspectives.
I recently had a lot of time on my hands (I hate gardening!) so put it to good use travelling to other parts of the world, as well as sight-seeing I observed how other protection markets operate. I also spent time studying the way businesses operate and how humans interact with them. I have reached many conclusions, which I will write about here in the future.
Before I do that, I would like to cover an issue I know vexes some and occasionally spills out into heated discussions. That subject is ‘premium levels’ – and the fact that there are seemingly many, even for what is our least differentiated product, term life insurance.
I turn to this subject first because it’s an important one and because I recently engaged in one such discussion with one participant using the emotive term ‘loaded premiums’.
So, what is the right price to charge for life insurance?
Is the right price one that carries no commission, but where the arranger charges a fee? Is it where a low-cost broker routinely sacrifices an amount of commission to reduce the standard IFA price? Is it the standard IFA price or those prices which are sometimes charged through some ‘restricted’ businesses? Is the right price charged by banks or perhaps that charged by insurers when dealing directly with customers?
Each of the questions above will have some saying yes and others no. The answer of course is that there is no single right price and every example is ‘loaded’, either with a fee, a commission or an expense to support the retailer’s activities.
Life insurance is taken to market by many different businesses with different models and different expenses in doing so. In the extreme there are some that maintain a high street presence; others an office at home. Some spend large amounts on marketing, to attract new customers to the market; others service clients who are referred to them by other clients. It is also common for different channels to serve different customer groups with different risk profiles.
So, before any of us decides what is and isn’t ‘the’ right price, postulating it is whichever one we have gravitated to, perhaps we should give full consideration to the wider context and not simply assume that the lowest price available [somewhere] always produces the best outcome for [all] customers. Whilst I can see why some are attracted to such an argument, it can’t possibly be universally true.
We don’t ‘currently’ have a price regulator, but we do have a regulator who has a fairness agenda and to quote them from a recent thematic review “We want to see a sustainable insurance sector, where firms compete by focusing on service and value as well as price”.
I don’t think a market which operates with a variety of business models and prices is one that is necessarily broken, however I do think the opposite would be true.
Richard Verdin is chief marketing officer, UK & Ireland at RGA