January is the time when people traditionally reflect on things, particularly the events of the past year and, following this reflection, it is common to make New Year's resolutions. So I thought that I would reflect on 2003 and set a 2004 resolution that I would very much like the life insurance fraternity (insurers and re-insurers) to sign up to.
Looking back on 2003, apart from the realisation that critical-illness policies have to change, the other big issue has been the sheer number of reprices and policy word/definition alterations that have taken place. Coping with the changes has been a challenge but change is something that you must get used to when you run a business. However, when we cause change, we have to understand that it is incumbent upon each of us to act reasonably because those we advise and those we have to work with again in the future deserve it.
Historically, when life insurers make changes to the terms they are prepared to offer, they make provisions for customers with applications already “in the post” or “in the pipeline”. These provisions are called transitional arrangements. Ordinarily, transitional arrangements allow for these applications, with properly dated quotations and declarations, to work their way through the process and complete on the terms that were applied for (subject to underwriting) and this reasonable approach is the way it should be.
For the last eight years or so, insurers have found it very easy to offer reasonable transitional arrangements because, by and large, premiums have reduced and the conditions covered have been extended in favour of customers. It therefore follows that insurers were generous in the time they gave “old applications” to complete as these were always on worse than the current terms available to the customer.
As an added bonus, if the reason for the change had been as a result of a new deal between insurer and re-insurer, then it was quite possible that the old applications were far more profitable than originally envisaged. So insurers were enthusiastic to allow old applications to have as long as necessary to complete.
Of course, 2003 has been the year of rising prices and reducing cover definitions so once new terms have been announced, “old applications” became a drag on the business. Again, if the changes were the result of a new insurer/reinsurer agreement, these applications became less profitable than envisaged and therefore insurers have been motivated to reduce the number of completions from old applications.
It is against this background that a number of insurers have started to become unreasonable when making changes and announcing transitional arrangements and they have developed a couple of devices to protect their downside. The first is to announce ludicrously short timeframes for cases to be accepted, the second is to announce equally ludicrous timeframes for policies to be “on risk”.
The problem with these is that, for acceptance deadlines, the insurer manages the process through to acceptance and therefore insurer failings in admin worsen the terms for the customer and a cynic might expect an insurer to go slow deliberately. The second device of “on risk” deadlines fails to recognise that the mortgage event is at the heart of the majority of term business and therefore arbitrarily set deadlines are meaningless to the customer's total transaction.
Again, a cynic might suggest that insurers understand this and therefore failing to recognise it is in fact a ploy.
The result of this change in behaviour is, of course, felt most by the IFA as it is we who have to explain to customers why the product at the price we have quoted is now not available. Of course, we understand the legalities of who is offering and accepting, etc, but an average person reading an illustration and the acknowledgement letters from the insurers would quite reasonably expect that, subject to underwriting, they will get the terms quoted.
Customers therefore quite reasonably become annoyed at the change and it is advisers who lose the trust of the customer. I would ask all those determining transitional arrangements to make a resolution to be reasonable and to stop damaging relationships between IFAs and customers.
I would urge you all to take a leaf out of Norwich Union's book since it stands above the rest in terms of the way it deals with transitional arrangements. Perhaps it is because, of all the insurers, NU has a big direct-sales channel which understands the issues or maybe it is because it understands the business it is in and that trust and service are paramount, or maybe, just maybe, it is because Tesco just would not let them treat customers that badly.
Richard Verdin is sales and marketing director of Lifequote